Economics for small groups (Part four)
By John F. Sase, Ph.D. Gerard J. Senick, Senior Editor Julie G. Sase, Copyeditor
“Doctor Cukrowicz: Mrs. Venable? I can’t guarantee that a lobotomy would stop her — babbling!!
Mrs. Venable: That may be, maybe not, but after the operation, who would believe her, Doctor?
Doctor C: My God. [Pause.] — Mrs. Venable, suppose after meeting the girl and observing the girl and hearing this story she babbles — I still shouldn’t feel that her condition’s — intractable enough! to justify the risks of — suppose I shouldn’t feel that non-surgical treatment such as insulin shock and electric shock and —
Mrs. V: SHE’S HAD ALL THAT AT SAINT MARY’S!! Nothing else is left for her.
Doctor C: But if I disagreed with you? [Pause.]
Mrs. V: That’s just part of a question: finish the question, Doctor.
Doctor: Would you still be interested in my work at Lion’s View? I mean would the Sebastian Venable Memorial Foundation still be interested in it?
Mrs. Venable: Aren’t we always more interested in a thing that concerns us personally, Doctor?
Doctor C: Mrs. Venable!!”
—Tennessee Williams, Suddenly Last Summer (original script, 1957; published by Dramatists’ Play Service, 1958)
During the past ten months, we have discussed Economics for the purpose of enlightening small business owners such as attorneys in the hope that this information will help our readers weather and participate in the recovery of Detroit and Southeast Michigan. During this time, we considered the fundamental fulfillment of economic conditions that every successful small business or professional practice needs.
In this month’s column, we continue to build upon the core elements needed for Sufficient Affluence. This term is defined as what and how much is necessary for a person to meet his/her needs. In conjunction, Sustainable Economy is the system of managing resources in a manner that remains feasible and flexible over an extended period of time. As we discuss the knowledge, experience, understanding, insight, and common sense needed to build and sustain a law practice or any other small business, we will address the virtue of wisdom. In addition, we will discuss the need to build and to maintain a strong, healthy community where businesses can survive. Finally, we will discuss the maintenance of invisible assets of a firm that often are bundled together within the goodwill of a company.
Our Wisdom
In any large or small business, knowledge of marketing, accounting, financial management, production, and other functional areas are important. Many of our readers who have established their own law firms have some education in these business skills while others wish that they had taken a few courses in Economics, Accounting, and Finance. However, both groups need to develop the art of entrepreneurship, a subject that universities have attempted to teach during the past few decades. In this realm of business activity, though, experiences of success and failure generally make the best teachers. Wisdom helps to make the best students. Wisdom, which comes from the Old Norse word v?sd?mr, is our ability to think and act through the use of our inherent and learned qualities. Long regarded by most cultures as a cardinal virtue, wisdom involves our disposition to perform tasks at the highest degree of sufficiency in any given circumstance. Wisdom involves our understanding of people, things, events, and situations along with our ability and willingness to apply perception, judgment, and relevant response in order to take an optimal course of action. Often, this virtue requires us to control our human passions in order to allow the universal principle of reason to prevail. In brief, wisdom constitutes a disposition toward finding the truth and using optimal judgment in respect to effective actions taken toward a positive outcome.
Understanding, insight, and common sense tend to be inherent qualities of human beings. The good news is that most of us are descended from ancestors who had these traits. (The humans who failed to reproduce had backed into peat bogs or were eaten by sabre-tooth tigers before reaching puberty.) Therefore, we can consider wisdom as the key element for success in building a thriving legal practice or any other kind of business organization.
Traditionally, our schools in the United States and other countries have approached the matter of character-education to develop wisdom and other virtues through shared responsibility with parents and community. However, this approach to education has suffered in recent decades as schools have drifted to the current focus of mere acquisition of knowledge in a form measurable via standardized Bubble Tests (i.e. fill in the bubbles on a multiple-choice answer sheet). Have we not been taught a lesson by the history of oppressive regimes in numerous industrialized states of the past century? Without wisdom as a guide, new knowledge and advanced technological abilities easily may cause great human suffering and death along with perceived benefits to humanity. Let us conclude this section by saying that wisdom is the application of knowledge to attain a positive goal by receiving instruction in governing oneself.
Our Community
For any law firm or other local business to succeed and to remain successful in the long run, it must be built upon a strong and healthy community that promotes an educated and trained labor force. The business must be built upon a foundation in which humanity thrives. Otherwise, the messages spoken by our firms are hurled at an incoming mighty wind. This is why giving time or money to the community is more important and more effective than loud advertising. Great leaders as well as infamous despots have understood the importance of community-building throughout the millennia. In the world today, much of this community-building and maintenance has fallen to various levels of government. However, their endeavors must be supported through tax revenues. In contrast is the age of private charity, which flourished a century ago. Then, households were free to direct their giving to whatever need that they saw as fit. Today, some families continue to manage charitable giving in a similar manner, but in a society that imposes far more taxes than during the Age of Innocence before the World War(s) and the institution of the federal income-tax. However, a drawback of pure-private giving is that community-building and maintenance may fall subject to the whims of incapable individuals or persons carrying heavy baggage full of many biases and prejudices. We are able to view that world through the ITV hit drama Downton Abbey, which is shown on PBS. English writer/producer Julian Fellowes enables us to explore the interactions of the multiple classes of British society during the first third of the twentieth century. Fellowes does this by showing the complex relationships, both upstairs and downstairs, at the Abbey and in the surrounding regions. At the darker level of asking why people give, we may turn to the words and characters of American writer Tennessee Williams in his classic play Suddenly Last Summer. Though many of us may enjoy the eye candy in the film version starring Elizabeth Taylor, Katherine Hepburn, and Montgomery Clift (Columbia Pictures, 1959), the television production with Maggie Smith (BBC, 1992) remains the only recorded version that is 99% true to the emotional cesspool of human debris that is found in the original 1957 manuscript. In Williams’ play, Sebastian Venable — a charming yet disturbed homosexual poet from New Orleans of 1935 — shows his ultimately malevolent nature before being killed and devoured by a gang of naked children in coastal Spain. His beautiful cousin Catherine Holly witnesses the bizarre murder. Months later, Violet Venable, a wealthy philanthropist who is Sebastian’s mother, attempts to silence Catherine by institutionalizing her and arranging for a lobotomy. In Scene I, which is quoted in our opening, Violet will hold back research funding for the surgical mental asylum if the lead doctor does not agree to perform the lobotomy on her niece. Catherine has been “babbling” (in Violet’s words) about the homosexual lifestyle and the resulting horrific death of Sebastian. At the end of the play, it is unclear whether Catherine’s story is true. However, Violet lunges violently at Catherine with her cane and is led offstage while screaming “Lion’s View! State asylum, cut this hideous story out of her brain!” The play concludes with the doctor stating reflectively “I think we ought at least to consider the possibility that the girl’s story could be true….” For the rest of us, we might at least consider the candidacy of Violet Venable as the poster dowager of self-serving charity.
Let us consider the issue of charitable giving from an economic perspective. With the exception of a few large institutions, such as the Rockefeller Foundation, only government agencies can achieve an economy of scale not attainable in the private sector. The government achieves this economy by minimizing administrative costs in proportion to the funding received by the final recipients. However, smaller private groups challenge this governmental economy of scale through the use of staff who are paid below-market salaries or through volunteers. The distinct advantage that small private groups maintain rests on a local level. Within their communities, businesses and individuals can focus closely on smaller organizations. Chief decision-makers in the giving community may participate directly in the dispensing of funds and in the monitoring of the results. When I (Dr. Sase) served as head of research at Focus: HOPE in Detroit during the 1990s, I learned some important lessons about altruism. Charitable giving from a sense of altruism may make the giver feel good — all warm and fuzzy. However, it may produce less-than optimal results for the recipient (though, of course, all contributions are welcome). What I learned in respect to corporate giving that comes through organizations such as the National Bank of Detroit (now part of Chase) and institutions such as the Mott and Kresge Foundations is that a responsible banking approach works best for all parties. This approach considers the giving as a social investment. As with any investment, there needs to be accountability and measurement of the social-payback period and the overall payback on the investment. For example, the Machinist Training Program at Focus: HOPE had a payback period of just over three years. The social return on investment, which was derived from the increase of taxes paid and food stamps foregone by the 60% of students that completed and found sustainable employment as machinists, repaid the social investment thirteen times over again in present-value terms. Here is an example of a different nature to which I was close: A $6 million grant intended as an endowment to fund tuition at a higher institution that shall remain nameless was used to pay down current debts instead of for its intended use. I would not be so harsh to say that this institution should be cut off from future funding. However, this example provides a good lesson that adequate controls and restrictions be set firmly in place before the disbursement of funds. We hope that any attorney or business person involved with viable nonprofit organizations does not succumb to the malaise that many of us witnessed from inside such organizations. Many seem to be overtaken by this malaise, which comes with feelings of altruism. Often, sound common sense practiced in business gets left at the door when individuals move from the for-profit sector to the nonprofit sector. This tendency occurs when the romantic cloud of altruism obscures the financial realities of the nonprofit—in other words, the bottom line is ignored. This serves neither the larger community nor the individuals who may benefit from this community-investment in the long run.
The mantle of private, charitable giving often gets muddled when responsibilities pass from one generation of givers to the next. This phenomenon resembles a similar one that some of us have observed in the business-succession of small tool-and-die shops. Those garage-entrepreneurs who start the business usually do so out of necessity. They succeed due to the acquisition of adequate “street smarts” as they build their business from the ground up. The second generation usually does all right by following closely in the footsteps of the entrepreneurial parent. However, a higher probability is that the third generation will drive the business into the ground through lackadaisical management approaches. The term often used to describe this behavior in many industries is “shirt-sleeves to shirt-sleeves in three generations.” For this reason, it is best for the third generation to use the boost provided by the first two and strike out anew on their own.
Our Invisible Assets
When law firms or businesses of any sort change hands, either by death, sale, or succession, some assets that are accounted for as goodwill or business savvy get lost. In most cases, the loss is not intentional. Nevertheless, the incoming business owner loses a valuable asset, which quite likely will affect the income or other benefits of the predecessor operatives. Usually, these networks of operatives are held together by a common belief-system, which is sustained by material support. This material support may exist in the form of an employment position, establishment and patronage of a business, direct side-payments of cash, or a variety of personal favors that secure an obligation by the operative to the network.
This is the way that most businesses, especially smaller businesses, survive. However, there are thin legal lines involved with the kind and extent of repercussions that can occur if operatives fall out of step with the network or open their mouths too widely. For examples beyond the legal pale, we can look at any number of Martin Scorsese films in order to understand that breaking “the code” that holds the group together may result in a violent death for individuals and their immediate family members. In less extreme situations, those who break a silence or divulge certain knowledge may be shunned by the larger group—excommunicated, one might say. Such banishment may lead to a loss of wealth or to a loss of income that emanates from the extended family. Though this approach to regimentation and authority may be nearly as effective as our Scorsese example, it does leave “chinks in the armor” through which many of us have developed the ability to peer. Though not rocket science, such vision does require practice for most of us. The key to such observation is not to react. Rather, we should bide our time patiently and respond at the moment of ripeness.
Understanding how these systems of operatives function is not difficult. Likewise, the operational efficiency and structural stability can be tested quite easily. During the late 1960s and early 1970s, I (Dr. Sase) was part of a group at Justin Morrill College at Michigan State University that studied the socio-psychology of human-communication networks, both in the classroom and in the field. When confronted by localized systems of this sort, we learned that a piece of information or an implanted thought would travel full circle in about three days and that the chinks in the armor en route allowed us to track not only the time sequencing but to identify the system leaks. In the case of less localized networks, we found that the same transmission may take five to seven days to pass through the system, during which time larger holes would emerge in the circuit. Of course, these experiments took place during an era in which most communication was verbal; face to face or transmitted by landline telephone. The efficiency of our 21st century technology speeds up the process. However, the technology and speed tends to leave many more leaks in the system—just ask Edward Snowden. To simplify this point, let us say that, in addition to having friends in high places, it is good to have friends at the middle and lower stations. In researching candidate companies for his focused funds, investment guru Warren Buffet reminds us that we are likely to discover more about a firm from a janitor or a cab driver than from a chief executive. Put into the world of Downton Abbey, Lord and Lady Grantham have done well by putting their trust in loyal servants John and Anna Bates more than once.
Wisdom, community, and invisible assets are important to attorneys and to the clients that they serve. Wisdom orchestrates the qualities that enable us to prosper. Community provides the foundation upon which to build the business structures that allow us to succeed, and the invisible assets are the glue that binds it all together. We hope that our readership of attorneys find this month’s column and the others in the series helpful to their law practices. As a Forensic and Business Economist, I (Dr. Sase) believe that, if each of us identifies our own level of Sufficient Affluence and further develops our professional practices with an awareness of Sustainable Economy with attention to ancient cardinal virtues, then we will increase the probability for survival and success, both individually and collectively.
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Dr. John F. Sase has taught Economics for more than three decades and has practiced Forensic and Investigative Economics since the early 1990s. He earned an M.A. in Economics and an MBA at the University of Detroit and a Ph.D. in Economics at Wayne State University. He is a graduate of the University of Detroit Jesuit High School. Dr. Sase can be reached at 248.569.5228 and at drjohn@saseassociates.com. You can find his educational videos of interest to attorneys at www.youtube.com/saseassociates.
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Gerard J. Senick is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a Supervisory Editor at Gale Research Company (now Cengage) for over twenty years. Currently, he edits books for publication and gives seminars on writing and music. Mr. Senick can be reached at 313.342.4048 and at www.senick-editing.com. You can find some of his writing tips at www.YouTube.com/SenickEditing.
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Julie G. Sase is a freelance copyeditor and proofreader. She earned her degree in English at Marygrove College and her graduate certificate in Parent Coaching from Seattle Pacific University. As a consultant, Ms. Sase coaches clients, writes articles for publication, and gives interviews to various media. Ms. Sase can be reached at Julie@royaloakparentcoaching.com.
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A PDF copy of this article will be posted at http://www.saseassociates.com/legalnewscolumn.html. We continue to post videos related to our monthly column on www.YouTube.com/SaseAssociates in the Legal News Features playlist. KindleBooks (that can be read on PCs and Macs) and paperbacks adapted from selected past series are available through amazon.com – Search All – John Sase
