Book Review

On How the Sausage is Made

Beware the naked man who gives you a shirt.

African Proverb

$75! $90! $100! It sounds like a high-stakes used car auction, or an old-timey cattle auction like you might see in the Midwest. But these dollar-for-dollar antics actually took place in a tale about the creme-de-la-creme of Wall Street. In 1988, some of the world’s highest paid business people fought in smoke-filled rooms to acquire (and grow/dismantle) the recently combined RJ Reynolds-Nabisco behemoth.

Born out of incredible reporting at The Wall Street Journal, Burrough & Helyar’s “Barbarians at the Gate: The Fall of RJR Nabisco“, is a movie-like experience chronicling the rise, and ultimate fall, of F. Ross Johnson and the management team of RJR Nabisco in their attempt to quietly perform a leveraged buyout (LBO) of their own firm.

I wish I could write a long treatise on this book, it was that incredible. If you’ve only seen the movie, or talked about it around the water cooler, go read it immediately. Here, instead of trying to dissect the entire 500+page opus, I am going to focus in on one core part of the book: Johnson’s announcement of an LBO and the immediate frenzy to counterbid by ravenous Wall Street bankers.

LBO: What’s in a Name? Many readers will already know that, at its core, a leveraged buyout is simply a corporate acquisition where the transaction is fueled by a small equity boot and a large debt offering secured by the company’s own assets. But, as the saying goes, that’s using ten-dollar words when some ten-cent ones will do.

An LBO is just a mortgage (credit to the TV Movie of “Barbarians” for this great analogy). Private equity shops (like those of Henry Kravis and Ted Forstmann) put a down payment on a company, and large banks (like J.P. Morgan and Merrill Lynch) provide the mortgage. The only difference? The private equity shops don’t make the monthly payment, the company does. And here is where Wall Street of the Roaring 80s turn a homey campfire into a ten-alarm blaze.

Pedal to the Metal. There are plenty of excellent analyses of why LBOs became so big and easy to perform around the time of the 1980s. But the simplest way to describe it, using the mortgage example, is by pointing out that the down payments didn’t get bigger, the mortgages got easier and easier to get. Think of Chase or Bank of America. If you go to your local branch to get a mortgage, you will likely be swamped with months of paperwork, credit checks, collateral demonstration, and more. Now, imagine a well-tailored, good-looking young gentlemen shows up at your front porch and rings the doorbell. “Good afternoon, my name is Michael Milken,” he says, “I work with Drexel Burnham Lambert and I’d like to give you your next $1 million mortgage with only 3% down required!”

Suspicious? You should be! But this is what happened in the 1980s. With the postwar global economy in full gear, escape from the disastrous inflationary period of the 1970s, and interest rates at an all-time low, people in the developed world were running out of places to invest their savings. Rather than putting their money into CDs, the stock market, or tidy corporate bonds, individuals (and the pensions that represented them) began the hunt for yield and gave traders like “The Suave Salesman” Milken access to essentially unlimited funds.

But this alone would not have been enough. Imagine you have your $1 million mortgage from The Suave Salesman and make an offer on your neighbor’s house. There is no need for the neighbor to even contemplate your offer. People don’t have to sell their houses! And they don’t even have to give a reason.

But that’s not the way it works with corporations. Thanks largely to the dogged persistence of the Chicago School of Economics (hi alma mater!), the emergence of “Shareholder Primacy” meant that Boards of Directors always had to make decisions that would maximize shareholder value. So, this standard meant that Board of Directors would have to entertain (and typically approve) richly valued takeover attempts even if they would dismantle companies, cause thousands of people to lose their jobs, or ultimately end in bankruptcy because of such a punishing debt burden.

Value is in the Eye of the Beholder. $75! $90! $100! With The Suave Salesman funneling billions of dollars to any private equity firm on the block, what impediment does price become? Basically, it doesn’t. Which always begs the question, what is a price anyway? Seriously, why is RJR Nabisco trading in the $40-$60 range for years, and then with an overnight announcement becomes a $70+/share stock?

Well, as the adage goes, “Price is what the market will bear”. So, with financing not an issue, and the RJR Nabisco board obliged to entertain any compelling offer, a high opening salvo was launched. F. Ross Johnson opens his bid at $75, causing the stock to soar to $77.25 as traders anticipate the coming escalation. The immediate reactions to Johnson’s offer (as hilariously chronicled in Barbarians) show the folly of letting Wall Street play with unlimited funds:

[Eric] Gleacher [lead banker at Morgan Stanley] was leaning back in his desk chair when he saw the headline cross his computer screen. In a flash he swung forward and stabbed at his telephone console. “I don’t give a shit what you’re doing,” he barked. “Get down here right now.”… [They] were stunned as they stared at the screen. RJR? A deal? Without Morgan Stanley? Look at the price, Gleacher said. At $75, they quickly agreed, Johnson was stealing the company.

Jeff Beck [executive at junk-bond firm Drexel Burnham Lambert] was at Skadden Arps when he heard the news… Beck was floored by Johnson’s announcement. An LBO? Without Drexel? Without me? It made no sense… Beck was fuming. Lock and load! He simply had to talk to Johnson.

Now just as [Henry Kravis’s firm KKR] had carved out a territory for themselves, here came Peter Cohen, a man who probably didn’t know the difference between LBO and BO, claiming he had a right to do an $18 billion deal! Kravis couldn’t believe the ingratitude, the gall. One part of him wanted to teach all of them, particularly Peter Cohen, a very rough lesson.

The classic text on the concept of “Valuation” (a ten-dollar-word for “What’s this hunk of junk worth?”) is written by McKinsey. In business schools around the world, eager young MBAs gobble up this information so they can ace their case and launch a successful Wall Street career as the shrewdest negotiator ever! With one small exception: it’s largely bunk. Sure, DCFs are useful and all, but look at the quotes above. Given these reactions, do you think that the choice of round numbers to top competing bids was based on changes in fundamental valuations of the RJR Nabisco assets? Overnight, did the company find $3 billion worth of cash lying on the factory floor?

How the Sausage(s) Gets Made. With gas on the fire, value in the eye of the beholder, and the press covering (ahem, glamorizing) backroom professional and personal drama, what is left? Honestly, how the sausage gets made is a series of calls, documents, revisions, meetings, dinners, flights, and cab rides until the decision makers get comfortable with everything going on. As I often say around the office, “there is no magic spreadsheet”.

“Trust is the coin of the realm.” – George P. Shultz

One particularly funny passage demonstrates the importance of group cohesion toward building a strong business:

Time after Time, [Peter] Cohen [chief executive of investment bank Shearson Lehman Hutton] attempted to pull his friend [Tom] Strauss [executive of bond firm Salomon Brothers] off to the side for a heart-to-heart talk. Each time, Mike Zimmerman or one of the other Salomon bankers would trot out and join the conversation. Cohen began to think of the Salomon executives as sausages, linked together wherever they went.

Which is where this book reveals how disheartening the past was. When the reader looks at the matte inserts photographing the main players of the Barbarians at the Gate saga, all we see (with Linda Robinson the lone exception) are a plethora of white male faces. And this is why diversity is, in my opinion, a per se good thing. How the sausage gets made is not really about merit. The most well analyzed, best tackled plan in corporate M&A is often not the one that goes through. What matters is trust, storytelling, and general excitement! In order to build a diverse workforce, which has been shown to produce better corporate outcomes overall, junior employees need to see decision makers who resemble themselves and are trusted to tell the stories and build the excitement around weighty matters like a $20 billion leveraged buyout.

There is no doubt the talent to build these relationships and close these deals exists across all demographic and ideological spectrums. One can only hope that future business novels (perhaps chronicling the high-stakes drama of WeWork’s fall or Michael Dell’s massive privatization of his eponymous firm) will contain a more diverse cast of decision makers all working to build trust, consensus, and better outcomes.

The Pride Goeth Before the Fall. I could go on and on with the quotes, but the ultimate lesson of the book to me is this: when money is no object, the lights are flashing brightly to land on the airstrip, and the team is right, don’t get cocky. Everything is lining up in the bankers favors to take the company private at a huge price point, rake in massive fees, and rule the day. But at every turn, what could have been a simple negotiation is derailed by the insane egos of “titans” on Wall Street. As the bidding heats up, Ted Forstmann (who ultimately loses in his bid to Henry Kravis’s firm KKR), proclaims:

Fuck them. This is not going to be the next KKR deal… I know Ross Johnson. I know Jim Robinson. Henry Kravis will not run off with this deal.

Salomon Brothers, the bond trading firm that ultimately lost out to Drexel, puts ego before everything even though the company has barely done any LBO deals, let alone one of this size!

Through all the machismo, through all the greed, through all the discussion of shareholder values, it all came down to this: John Gutfreund and Tom Strauss [of Salomon Brothers] were prepared to scrap the largest takeover of all time because their firm’s name would go on the right side, not the left side, of a tombstone advertisement buried among the stock tables at the back of The Wall Street Journal and The New York Times.

And what of Henry Kravis? The mastermind who wins the ultimate Pyrrhic victory by bidding an outrageous $24.9 billion (more than $50 billion today) takes the better part of a decade to see the error of his ways in overloading his target company with huge amounts of debt:

In 1995 KKR ran up a white flag, swapping its RJR Nabisco stock for shares in another company it controlled, Borden. Whatever profits it made – and it would take advanced calculus to figure that out – were minimal. “You know what they say, ‘That which doesn’t kill you makes you stronger,'” Roberts says. “I know this firm today is far stronger, despite that experience. You learn from things like this.”


Me Celebrating ALL THE HOLIDAYS

Happy Holidays everybody! Next up, I am going to review The Price We Pay, an investigation of what drives U.S.’s soaring healthcare bills by the passionate, and always certain, Dr. Marty Makary. Looking forward to discussing healthcare with you all in the New Year!


About “Executive Book Report”. This is a passion project brought to you by Thaddeus Diamond, a Computer Science and MBA grad currently working in the Kansas City area.


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Book Review, Entrepreneurship

On Living that Good Life

All of human unhappiness comes from one single thing: not knowing how to remain at rest in a room.

Blaise Pascal

Camels. Mongolian Greeters. Gwen Stefani. A custom-built temple. Such is the lavish 70th birthday party that banking billionaire Stephen A. Schwarzman threw himself (at a modest price-tag of approximately $10 million).

But in “What it Takes: Lessons in the Pursuit of Excellence”, Mr. Schwarzman’s “non-memoir” memoir, we encounter a very different side of the high-flying financier (who chalks the party’s reputation up to “bad press”). You can probably already tell from the beginning of this review that, frankly, this book made me want to gag. Schwarzman starts off with false modesty befitting only a man who spends millions of dollars on a party for his 600 “closest friends”.

I never wanted to write a memoir chronicling every moment of my life. I never considered myself worthy enough.

This, combined with the fact that Schwarzman has used his wealth to completely renovate an absolute architectural icon of my alma mater into a self-named dance floor and late-night “hang-space”, I almost didn’t finish the book.

But when I did, I realized that there were some lessons that could be drawn from his narrative. Rather than give his full backstory, I’m going to pull out a few salient bits that I found novel. You’ll excuse me if I don’t go into detail about how Schwarzman rose from humble ranks to the top of the financial pyramid.

Entrepreneurship at Any Age. Maybe just appealing to my advancing age (30 is the new 20, y’all!), I was actually quite surprised to find out that Blackstone was not a dorm-room idea, like Ken Griffin’s Citadel or Mark Zuckerberg’s The Facebook. Although Schwarzman had always dreamed big, the idea for Blackstone came after he had built a storied career climbing the corporate ladder of Lehman Brothers, one of the most revered financial firms of the 20th century.

What were [the Schwarzmans] doing with one store in Philadelphia? When America thought linens, it should be thinking Schwarzman’s Curtains and Linens. I could imagine our stores from coast to coast….

Stephen A. Schwarzman

After working his way to the top of the food chain, Schwarzman began planning his exit in the wake of Lehman’s fire sale to American Express. A disastrous trade had forced Lehman’s executive leadership into a corner, and an emergent American Express snapped up the financial firm for a bargain. But Schwarzman was intent on emerging from the flames to accomplish his long sought-after dream of becoming a “switchboard operator” (more on that later). That, and an admirable desire to keep working with Pete Peterson, the former CEO of Lehman that he really admired.

38 years old, with two young children and a significant amount of wealth, Schwarzman contributed $200,000 in capital (Pete matched) and the two set to work building Blackstone. They hired a secretary, got office space, rented furniture, and began calling. And miraculously: nothing happened. Despite shaking the trees with numerous high-ranking contacts, the only contracts that came in for advisory M&A work were barely enough to pay for their fixed overhead, let alone their own salaries. As Schwarzman notes: “Squibb Beech-Nut… hired us for an advisory job for $50,000. In my previous life, that would have been less than the legal fees on a single deal. It was now a lifeline.”

To see Pete and me, who had been so powerful at Lehman, so sure of our success, take a beating would have given many people pleasure. I couldn’t let it happen. I could not fail. I had to find a way.

Stephen A. Schwarzman

Through dogged persistence, things began to turn around a year into the venture (Fall 1986) which must have seemed an eternity for the two former kings of finance. But entrepreneurship at any age is possible, and always requires dogged persistence. As Schwarzman relates:

As a salesman, I’d learned you can’t just pitch once and be done. Just because you believe in something doesn’t guarantee anyone else will. You’ve got sell your vision over and over again. Most people don’t like change, and you have to overwhelm them with your argument, and some charm.

Chutzpah is a Good Thing. One of the best anecdotes Schwarzman relates is from early in his career. Just out of college, casting about for a job, someone asked young Stephen in an interview, “What do you want to be?” His response: “I want to be a telephone switchboard… taking in information from countless feeds, sorting it, and sending it back out into the world.” The interviewer thought he was crazy, though I actually admire the vision of being a central hub for information processing: it’s a business model often termed “platforming” today.

Regardless, Stephen ambled through his interviews and landed a job with Donaldson Lufkin Jenrette, a white-shoed Wall Street firm. Bill Donaldson (“the D in DLJ”), called Stephen a day or two after his interview and offered him a starting job at $10,000 a year, with a secretary to boot. Stephen’s response? “That is absolutely terrific, but there’s only one problem… I need $10,500 because I heard there’s another person graduating from Yale who’s making $10,000, and I want to be the highest-paid person in my class.” Wow. I would have never said something like that in my first job out of school. But understanding that Schwarzman is that kind of a gutsy negotiator tells you a lot about the origins of his future success.

Another display of outstanding gumption comes not from Schwarzman, but a person he interacted with. Recently divorced, Schwarzman and his son Teddy lived alone in a Fifth Avenue bachelor pad in New York City. To help around the house, Schwarzman hired a chef named Chang to cook dinners. As he started dating his soon-to-be-second-wife Christine, she came over and “[brought] some order to my bachelor habits.” Upon opening the fridge, she found boxes of Stouffer’s ready meals piled up. Chang had been reheating them and serving them to Schwarzman and his son as if he were a private chef! But the best part of the story is this: years later Schwarzman looked again to hire a private chef and put out an ad in the paper. I’ll let him tell the rest:

[We] were particularly impressed by a resume from a chef called Hymie. We invited him for an interview, and Christine recognized him the moment she opened the door. It was Chang!

Get in the Weeds. There is a debate that often rolls around my professional development program about how much to “dive into the weeds”. When a manager is running a business, she may be in charge of hundreds or even thousands of employees. GE, for example, at latest count had 283,000 total personnel. How to understand all the details of such a sprawling operation?

“Culp grabbed the reins in the summer board meetings, drilling the new CEO on questions about the power business, scolding Flannery in front of directors for not knowing such nitty-gritty details as inventory levels. Given the sprawl of GE, few expected Flannery to have them at the ready.” https://www.wsj.com/articles/ge-powered-the-american-centurythen-it-burned-out-11544796010?shareToken=st8f06eafc999d47dfbdc8f2226a3d8045

Some in my program advocate for a detailed knowledge of the inner workings of every portion of the business. From client contracts, to marketing spend, to R&D, to financial planning and accounting adjustments, these “micro-managers” advocate for following that famous Delphic maxim: “Know thyself”.

However, the other camp advocates that “micro-managing” is a dirty practice that has earned its disrepute. A lack of employee autonomy, combined with poor executive decision-making and mercurial interpersonal skills leads to a drag on breakthrough innovation and ultimately, stalled growth.

The answer for Schwarzman is clear: the devil is in the details. On an early flight to a prospective client in St. Louis, Eric Gleacher, the partner Schwarzman had prepared a prospectus for, noticed a math error that cascaded throughout the entire document. This single small error led to nearly half of the prospectus being wrong! Unfazed, Gleacher calmly admonished, “This is a mess, but we can give the presentation anyhow. Just take out the bad pages, and I can talk my way through the rest of it.” For the rest of the flight, Gleacher returned to his newspaper and Schwarzman set about removing the erroneous pages. The two landed in St. Louis, took a cab to the airport, and started the presentation. On page one, Gleacher’s eyes go wide. In Schwarzman’s haste, the young associate had torn out all of the good pages, instead of the bad ones!

As [Gleacher] spoke, he all but launched himself across the table grabbing our presentation books from the [prospective client]. “I can talk you through without any numbers.”… I could have melted under the table. We left the company, got in the cab, and rode back to the airport. Not a word. Right before they called the plane, Eric turned to me: “If you ever do that to me again, I’m firing you on the spot.

You have to admire Schwarzman for taking the lesson to heart. Lehman taught him that if he wanted to succeed in finance, he had to “observe every step of the process and [be] trained in all details, any one of which, done wrong, can bring everything crashing down.”

In the End. At the end of the day, I’m probably being too harsh on Schwarzman. He is a human being just like the rest of us, and has done many quite admirable things with his enormous wealth, including funding higher education endowments which often goes to subsidizing aid for poor and underprivileged applicants. Still, one is left wondering whether this book really has much to offer in terms of lessons other than the common tropes of “Sit up straight, be on time, and do the work!” In the 21st century, with all we know about gender bias, income inequality, the looming threat of climate change, and more, there are so many systemic changes we need to make before just “doing the work” results in perfectly meritocratic outcomes.


Next time: we hold guard! I read Barbarians at The Gate in record time because the movie-like tenor of this masterpiece left me on the edge of my seat.

Getting My Eating Pants Ready!

Have a great Thanksgiving all! I am so thankful that you have read this far and stayed with me throughout the year!

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Book Review, Corporate Strategy

On Planning

Everyone has a plan until they get punched in the mouth.

Mike Tyson

Turn of the 20th-century United States. The Gilded Age is in full swing, and Americans are showing their economic might on the world stage. From a backwater frontier of less than 20 million people, the population has boomed in the aftermath of the Civil War to over 70 million. Through cunning, ingenuity (and intellectual property theft), the United States – fresh off a victory in the Spanish-American War – is emerging as a new imperial power.

But off the Western coast of the Gold Rush state, beyond the outskirts of newly won Pacific Island military bases, a strange adversary is flexing its might and threatening war. American generals, motivated by fear, glory, and a healthy dose of racism, realize it’s only time before an outbreak of all-out naval War in the Pacific brings the majestic, ancient Japanese Army into conflict with a newly emergent United States Navy.

What should they do?

In Edward Miller’s War Plan Orange, we are shown the development and ultimate rejection of “War Plan Orange” – a set of formal and informal logistical, battle, and diplomatic-related plans for the coming U.S. vs. Japan showdown in the Pacific. A part of the “Color-Coded War Plans” (the United States is Blue, Japan is Orange), it is ultimately scrapped on the eve of World War II for “Rainbow Plan Five”, a strategy that spelled out the ultimate defeat of the Axis Powers. Far from replaying the elementary school tale of “a surprise at Pearl Harbor” – Miller’s book lays out how the United States had anticipated the looming Japanese threat and began preparations for a war of attrition that would lead to a “final showdown” for Pacific (and ultimately, global) supremacy.

While Edward Miller does a masterful job in evaluating all the ins and outs of planning, his narrative is completely non-chronological. Instead of tackling a forward timeline, he establishes “themes” that he visits and revisits, ultimately working toward a final few chapters on how Plan Orange itself influenced Rainbow Plan Five and the prosecution of World War II’s Pacific Theater. Here, I’d like to do the same, and dive into the major themes of the book.

Planning, or What’s in a Name? Anyone who is familiar with the works of Shakespeare may understand that a rose by any other name would smell as sweet. So, if you’re a member of the Army (or a corporation or a non-profit or a …), it can be hard to understand what someone means when they come up to you and say, “I think we are doing good work here, but we are missing a coherent plan for how we will accomplish our goals. We need to think more strategically! What are they even talking about?!? Edward Miller spells it out:

American war policy was determined in a varied and often informal manner. The plan was elaborated in such studies as “Estimates of the Situation Blue-Orange” and in correspondence of officials that preceded or interpreted the official versions. The plan was a matter of common understanding more than a set of documents… They must have been topics of lively discussions in wardrooms and field headquarters. Plan Orange was one of those historical credos that are said to be “noted and filed in the Navy’s corporate memory” and “genetically encoded in naval officers.” It had been absorbed by the high commanders of World War II as the descriptor of the mission that had shaped their lives and institutions… They did not usually pull the old documents from the safe to reread as manuals.

The emphasis above is mine, and even though it comes early on in the book, this was the most illuminating passage for me. Often in business we talk as if there are a set of templates, or a “Magic Powerpoint” that we can create to achieve a better, more standardized set of outcomes. But, when we get into this mindset, we should remember, the Allies won World War II with a largely informal plan for mobilizing millions of men in a foreign ocean! It is a truly awe-inspiring level of commitment to an unspoken mission.

Cautionaries vs. Thrusters – Ultimately, it is not clear why the Navy embarked on War Plan Orange. Miller notes that, since Commodore Perry had landed The Susquehanna in Tokyo and forced open the intercontinental tradelines, Americans actually had fairly cordial relations with the Japanese. There are various thoughts around how growing racism in the Western United States due to an influx of Asian immigration around 1900 bubbled its way up through American institutions, or that Japanese dominance in the Russo-Japanese War stoked fear in the hearts of American military commanders. Regardless, war planners got to work.

At the outset, naval commanders were in agreement: Japan would provoke the United States into a war through a simple, tactical assault somewhere on a Pacific military base, Alaska or the outer coast of California. Once at war, Japan would seek to entrench its land forces on islands along the Pacific to grow it’s physical footprint and prevent U.S. entry into the Orient. Therefore, if the United States were to accomplish a total victory, it would have to defeat Japanese army forces with its own naval forces. It would be a battle of land versus sea.

Despite the massive overestimation of the United States Navy – which around 1900 could hardly defeated the Pirates of Penzance – if this is accepted as the U.S. Strategy, it begs the question of detail. If the goal of the U.S. was complete victory through naval domination, how should planners effect this strategy? Here, the US Navy broke into two camps that would last until after World War II had broken out! The first camp was composed of what Miller terms “Cautionaries”. These military leaders wanted the United States to slowly prosecute the War in the Pacific island by island, moving from Pearl Harbor in the eastern Pacific, constructing mobile bases at Wake Island and the Marshalls, then onto the Marianas south of Japan, and finally using the Philippines and/or Ryukyu Islands as a stronghold for a complete economic blockade of Honshu. The second camp is labeled by Miller as “Thrusters”. These alpha males wanted to strike while the iron was hot, lurching westward all the way to Guam or Eniwetok, then the Philippines, to show the United States’ might and subjugate the Japanese quickly, avoiding a prolonged war of attrition that would sap the United States’ citizens morale for a war they could not understand.

These camps were well represented at the top levels of leadership (Admiral Robert Coontz and General Douglas MacArthur among the Thrusters, and CinCUSAF Admiral Clarence S. Williams), so the forty-year fight for ideological supremacy was even-handed. But color me surprised that even in as buttoned-down an environment as the United States Military, politics and infighting happens just like in any other organization.

A Western Gibraltar – As War Plan Orange develops, Miller provides an excellent example of how, even in the Military, branding is everything. As the Thrusters begin to advance their critique of the Cautionaries’ war strategy, they need a “killer idea” to bolster their argument. As they ascend in prominence in the leadership (most notably with Admiral Coontz’ elevation to Chief of Naval Operations), they coalesce around a simple, yet elegant, description, of how they will prosecute their rapid assault on the Pacific: “A Western Gibraltar”.

A robust plan, [the Chief of Naval Operations] observed, flows best from “plurality of perspective and the resulting competition of ideas…. The process may be somewhat untidy, but it is distinctly American. It works.” – Edward Miller, “War Plan Orange”

To understand this, we have to revisit Gibraltar and what it meant for the British. At the turn of the 18th-century, the Grand Alliance (The Holy Roman Empire, Great Britain, Dutch Republic, and Habsburg Spain) launched a series of interconnected wars to beat back the French’s rapid encroachment on European territories (namely, a monarch-less Spain). In the War of the Spanish Succession (and its related skirmishes in Hungary, India, and North America), two enormously important outcomes happened for the British. First, the Royal Navy became the undisputed global maritime power (a place it would hold for two hundred years until the U.S.’s emergence in World War II). And second, the ensuing Treaty of Utrecht ceded the small rocky landscape of Gibraltar from the Spanish to the British.

The reason that Gibraltar was so vital to the cause of British domination is that the port of Gibraltar allows whichever naval force controls it to utterly dominate global maritime traffic through a single “chokepoint”: the Strait of Gibraltar. For Americans, emulating this strategy in the Pacific caused even the most cautionary of military commanders to salivate. Thus, the idea of “A Western Gibraltar” was born: a single port the United States could control in the Western Pacific to utterly dominate the Japanese’s commercial and military interests.

There was only one problem: there is and never will be such a thing as a “Western Gibraltar”. The atolls of the Pacific vary drastically in their geography and topography, yielding a completely different terrain than in Europe. First of all, there is no single atoll that stands out as a “chokepoint” – a major reason why the United States ultimately pursued something closer to the Cautionaries’ strategy of slow advance and naval encirclement reaching from the Ryukyus south of Honshu to the Aleutians far northeast. Secondly, and more importantly, the candidates that were chosen by the Thrusters to be a “Western Gibraltar” were completely unsuitable to service the large carrier fleets and combination of water-landed and carrier-landed aircraft that would prosecute World War II. As Miller notes, “[In Guam], at best, by excavating to a twenty-foot depth and building simple marine railways for servicing, destroyers and submarines might be accommodated.”

And yet, great marketing helped keep the Thrusters’ doomed strategy alive until the outbreak of War, when General MacArthur was actually stationed in Manila Bay, ready to defend his “Western Gibraltar” and quickly prosecute an unconditional surrender of the Japanese.

Earn Your Stripes First – Thousands of miles away from the nearest base, and with Pearl Harbor in flames, MacArthur and his forces battled heroically to save the Philippines in December 1941. The cause was in vain, as Miller writes, “the Japanese reduced the Philippines with overwhelming sea, land, and air power… MacArthur’s air force was destroyed on the ground. The raw Filipino army disintegrated during rash attempts to hold the beaches.” What then, was the outcome of this disaster? A recognition that MacArthur had been acting recklessly, ignoring high command entreaties for a cautionary strategy and hubristically leading his men into battle when The Washington Treaty of 1922 had kept the nearest backup 3,000 miles away?

Of course not. MacArthur, largely due to his men’s heroic efforts in the Philippines, was forever elevated into deity status in the military. In fact, this was his second great brush with fame, having been a decorated war hero in World War I. Despite later accounts of his cowardice in World War II (earning him the disparaging nickname of “Dugout Doug”), MacArthur’s reckless behavior “earning his stripes” would forever secure his name among the pantheon of great U.S. military leaders.

History is Written By the Victors – And what happens if you have not earned your stripes? For that we need only look at the story of Admiral Husband E. Kimmel. Born in 1882, Husband E. Kimmel was an Annapolis graduate who served with distinction in both the Battle of Veracruz and World War I. Through diligent work, he rose through the ranks of the U.S. Navy to the post of Commander in Chief of the United States Fleet (ironically shortened to CINCUS – “sink us”) on the eve of World War II.

With War Plan Orange fully developed, then rejected, and finally replaced with the Rainbow Plans, Admiral Kimmel was put in charge of the Pacific Fleet with a simple mission: prolong survival. Rather than the valiant Thruster strategy earlier developed by Coontz and championed by MacArthur, Kimmel was left with a Rainbow Plan (at that point, Rainbow Plan Three) that called for a drastically reduced Western Fleet and an ultra-slow stalling tactic in the Pacific so that Germany could be completely defeated first. This “Europe-first” strategy, as scholars have noted, was a result of George Marshall’s realization that Hitler would have to be defeated first so as to avoid British subjugation and a denial of US footing on the European mainland. In addition, the infamous “Plan Dog” memorandum from Admiral Harold Stark lent support to Marshall’s strategic elevation of the European Theater across all military branches.

The one great element in continuing the success of an offensive is maintaining the momentum.

General george marshall

Unfortunately, Admiral Kimmel didn’t get the memo. Not a household name, but desiring to be one, Kimmel actually began placing the Pacific Fleet (largely based at Pearl Harbor) in an offensive position! Rear Admiral Charles “Soc” McMorris, an aggressive Thruster now stationed as an operations officer in the Pacific, continually updated plans to reflect boat maneuvering. As Miller writes, “For example, on 6 December 1941 the two operative carriers were delivering marine squadrons to the atolls so if war broke out in the next twenty-four hours the Lexington was to fuel at sea near Midway… Our stories about Pearl Harbor being a complete surprise are not true. Miller even not-so-subtly intimates that Kimmel may have intended to provoke Japanese Admiral Isoroku Yamamoto into striking: “[Kimmel] intended to engage Yamamoto. That stakeout of the [Wake-Midway] battle line makes no sense except as a disposition for that event.”

We see therefore, that War is not merely a political act, but also a real political instrument, a continuation of political commerce, a carrying out of the same by other means. – Carl von Clausewitz, “On War”

Of course, what happens on December 7, 1941 is known to all. On “the day that will live in infamy”, all of Kimmel’s reckless positioning proved disastrous. Having no war hero credentials to fall back on, Kimmel was immediately stripped of his post and had two stars removed from his name. His family fights this decision, attempting to reinstate his legacy still today.

Timing is Everything – At the end of the day, as Miller notes, War Plan Orange in its formal form was little (if ever) used. Largely, it became encoded into the military leaders’ DNA and the intelligence gathered from the process of planning itself became invaluable in the prosecution of the war effort (namely, where to build mobile and which islands to skip entirely).

In preparing for battle, I have always found that plans are useless but planning is indispensable.

Dwight D. Eisenhower

One often-overlooked component of planning is the innovation that it engenders. For example, the slow realization that the Pacific consisted of landmasses far more dispersed than anything the United States had ever encountered led to a massive engineering effort to increase the range of aircraft in the fleet. This effort led to the ability during World War II to skip several once-critical islands and reduce the United States’ casualties by hundreds of thousands. Tales abound of bored Japanese forces staking out atolls on which the U.S. never landed. In addition, the realization that carrier fleets would be battered at sea and forced to dock for refueling every few hundred miles led to a switch from coal-fueled boats to oil-fueled boats that could easily refueled at sea from fast, small supply ships. Miller’s writing confirms that old adage that “necessity is the mother of invention.”

At the end of the day, sadly, it is unclear if the Japanese leadership would have surrendered even to the most aggressive of attrition/starvation-based war executions. Recently revealed documents show that US leaders expected 1.2 million casualties, including more than 250,000 deaths, from Operation Coronet, the plan to invade Honshu. With the U.S. having invented the Atomic Bomb “Just in Time”, President Truman made the fateful decision to use nuclear arsenal, and the rest, as they say, is history.


Next time: we learn about rich people! Boy, this was a doozy. I recently got through “What it Takes”, Stephen Schwarzman’s new biography about his life “living above the radar”. Must be nice!

Schwarzman Dancing at His 70th Birthday Party

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Book Review, Healthcare

On How We Die

Do not go gentle into that good night,
Old age should burn and rave at close of day;
Rage, rage against the dying of the light.

Dylan Thomas (1951)

Global life expectancy has risen from less than 50.0 years circa 1900 to 72.0 years today largely due to improvements in nutrition and public health. In the 1950s, people over 80 were only 1% of the U.S. population. Today that has quadrupled to 4%. China has more than 100 million elderly people.

The global aging crisis is real, and here. Global prosperity has inverted our traditional population distribution from a bell curve to a pyramid. As a result, the specter of old age is causing global governments to shore up their safety nets, revamp their policies on immigration, and make systemic changes to how we treat the dead and dying. Dr. Atul Gawande, in his sweeping opus Being Mortal, does no less than narrate and propose solutions for the entire issue. In his own words:

This is a book about the modern experience of mortality–about what it’s like to be creatures who age and die, how medicine has changed the experience and how it hasn’t, where our ideas about how to deal with our finitude have got the reality wrong… neither I nor my patients find our current state tolerable. But I have also found it unclear what the answers should be, or even whether any adequate ones are possible.

Though modest, his book is actually a stunning piece of work, and instantly became one of my favorites. Weaving data from demographic, medical, and popular sources with personally touching narratives of his patients and family, Being Mortal tackles the weightiest of all topics and leaves the reader incredibly satisfied.

When discussing this book, it is important to take it in three sections. First, the overarching narrative around “how we age and die”. Dr. Gawande charts the evolution of societies from Pre-Industrial to Developing to Industrial, and the mirror evolution that our treatment of the elderly takes. Second, Dr. Gawande tells a lengthy, complex narrative about his first exposure to caring for a loved one: the death of his grandmother-in-law due to natural mental and physical decline. Finally, Dr. Gawande closes with a very touching (yes, I cried!) discussion of his father’s struggle with, and eventual death from, a rare form of invasive spinal cancer.

The Practice of Aging – Dr. Felix Silverstone

Throughout the first half of the book, Dr. Gawande uses the narrative of Dr. Felix Silverstone, an eminent geriatrician experiencing his own physical and cognitive decline, to talk about the history of aging.

Societies pass through three stages: Pre-Industrial, Developing, and Industrial. In the Pre-Industrial phase (e.g., America before the Civil War, China before accession to the WTO, India in Dr. Gawande’s grandfather’s time), families care for the elderly. A relative lack of geographic mobility, combined with a human predilection to respect the elderly, leads tight-knit kin groups to care for their elders through their final declines. The Farewell, an upcoming movie starring the hilarious Awkwafina, actually touches on the Chinese tradition of surrounding family members in their final days.

Old age is a continuous series of losses. – Dr. Felix Silverstone

Economic development radically changes this familiar formula. As the wealth of a nation increases, the mobility of its citizenry tends to increase as well, leading to families dispersing geographically. In addition, reduced infant mortality rates actually lead to the average number of offspring declining. This combination leaves the elderly either partially or entirely alone late in life. In turn-of-the-20th century America, in the wake of the Gilded Age, 2/3 of United States poorhouse residents were elderly. In India today, a similar situation exists (which Dr. Gawande describes as “straight out of Oliver Twist”).

The moral outrage of these conditions in a fully developed society (in combination with surplus wealth from a now-mature economy) leads to the emergence of social safety net programs like Social Security (1935), Medicare (1965) and the ability for people to die in their homes again. In the U.S., a clear majority of deaths occurred in the home at the turn of the century. Although this figure dropped to 17% by 1980, since cementing our status as a fully Industrialized nation in the 1990s this number has steadily climbed.

The job of any doctor, [Dr.] Bludau later told me, is to… [provide] as much freedom from the ravages of disease as possible and the retention of enough function for active engagement in the world. Most doctors treat disease and figure that the rest will take care of itself. And if it doesn’t… well, that isn’t really a medical problem, is it?

Trying to Age Alone at Home – Alice Hobson

To explore how a society undergoes the shift from Developing to Industrialized, the author relates the story of his own grandmother-in-law, Alice Hobson. Born on a farm in a rural Pennsylvania town, Alice had a quintessential 20th century American life, marrying a civil engineer named Rich, and raising two children in Arlington, VA. Sadly, Rich preceded Alice in death due to a sudden heart attack in 1965. At 56, Alice was a widow.

Alice was a strong, self-sufficient woman. For years after Rich’s death, she lived on her own in the same neighborhood as her children. As the author recalls, “she mowed the lawn and knew how to fix the plumbing”. However, the writing was on the wall. In 1992 at the age of 86, Alice began having falls and experiencing visible confusion. Her family worried: was it really safe for her to live at home anymore?

I asked [Felix Silverstone, the former senior geriatrician at Parker Jewish Institute] whether gerontologists have discerned any particular, reproducible pathway to aging. “No,” he said. “We just fall apart.”

With nothing clearly medically “wrong” with Alice, the family had few options. Alice wished to remain in her own home, but it was clear she was unable to. She despised leisure-focused “retirement communities” like those Del Webb pioneered in the 1960’s. After searching with her son Jim, Alice ultimately chose to use the proceeds of selling her home to secure a spot in Longwood House–a pseudonymous senior-living facility that had private units combined with a Skilled Nursing Facility (SNF) ward for residents who could no longer live on their own.

Unfortunately, when Dr. Gawande visited her a few weeks later, “she [didn’t] feel at all happy or adjusted.” Rather than feeling that Longwood had provided care and amenities for her to continue living, Alice ultimately felt that Longwood had completely replaced her life. “She never got used to being there or accepted it”. After falls in her own living room forced her into the SNF ward of Longwood, Alice became dejected. She remarked to her son Jim, “I’m ready” and passed on quietly during the night.

Decline on Your Own Terms – Dr. Atmaram Gawande

The final section of Being Mortal is devoted to the moving story of the author’s own father, Dr. Atmaram (“Ram”) Gawande. In 2006, after experiencing neck pain and hand numbness that won’t subside, Ram gets an MRI and is presented with startling news. A slow-growing tumor has invaded his spinal canal and is beginning to compress all of the major nerves that control his bodily functions. Consultations with leading neuro-oncology surgeons present Ram with an option: open the spinal canal, remove as much of the tumor as possible, and create space for the tumor to grow without causing total paralysis.

“My father came to his end never having to sacrifice his loyalties or who he was, and for that I am grateful. He was clear about his wishes even for after his death.” – Dr. Atul Gawande, Being Mortal.

The possibility of undergoing such a drastic procedure frightens Ram, who then begings to ask probing questions: “Do you use a microscope? How do you cut through the tumor? How do you cauterize the blood vessels?” The first consultation – at Dr. Gawande’s own institution no less – is with a surgeon who quickly becomes peeved. After deciding that this was not the man to cut him open, Ram visits with a Cleveland Clinic neurosurgeon named Edward Benzel. Dr. Benzel answers all Ram’s questions and then presents an alternative: what if we keep an eye on the situation without surgery? When you decide it’s time to have the surgery, we’ll schedule you right away. Ram and Dr. Gawande are both incredibly relieved, and agree to follow this course of action. A year later, a repeat MRI shows the tumor has grown significantly, but Ram’s quality of life had hardly been impacted at all. No surgery is on the horizon, and life moves on.

But the good run does not continue forever. Although avoiding surgery had allowed Ram to maintain his quality of life, in 2009 his symptoms begin to change. He retires from his practice, but continues to delay surgery. By 2010, Ram struggles to walk, and Dr. Gawande sits him and his wife, Sushila, down for a talk. Using tactics he had learned from palliative care expert Susan Block, he begins:

“I’m worried.” [Atul Began]. “What are your fears if you should become paralyzed?”

“That I will become a burden to your mother and be unable to take care of myself.”

“If you could still eat chocolate ice cream and watch football on television, would that be enough for you?”

“That wouldn’t be good enough for me at all. Being with people and interacting with them is what I care about most. I can’t accept a life of complete physical paralysis, of needing total care.”

“Your advancing quadriplegia will mean twenty-four hour care, a ventilator, and a feeding tube. It sounds like you don’t want that?”

“Never. Let me die instead.”

(Paraphrase)

With this framework in place, Ram finally undergoes the spinal cord decompression surgery. It is a success, and seven hours later, his spinal column had been opened, small bits of the tumor removed, and general decompression performed. Ram would stave off full-blown paralysis.

But not for long. Unfortunately for Ram, oncological specialists press him to take a course of radiation and chemotherapy over the next several months, leading to severe side effects and frustrations (especially for Sushila, Ram’s primary caretaker). Finally resigned to his fate, and understanding that even the state-of-the-art treatments will not extend his expected lifespan beyond 3 years, Ram makes the decision to enlist home hospice care.

Dr. Gawande (being the elitist Bostonian he is), fully expects the Appalachian nurse from hospice to be completely incompetent. Instead, she is concise, direct, and caring. She sets an action plan in place, provides Ram with support to live his final days, and actually improves his quality of life.

Together, the family and caretakers string together good days, good weeks even, but troubles remain. Struggles walking, talking, writing, and even using the bathroom plague Ram. Dr. Gawande comes to Ohio to stay with his father full-time, along with his sister (who is able to introduce her father to her future husband). Finally, Ram’s time comes. The author writes:

[At the end], he asked for the grandchildren. They were not there, so I showed him pictures on my iPad. His eyes went wide, and his smile was huge. He looked at every picture in detail. Then he descended back into unconsciousness… [Finally], we went to him. My mother took his hand. And we listened, each of us silent. No more breaths came.”

Concluding

How do we conclude our lives? What is the “right” answer? The book’s epilogue includes a touching (and funny) tribute to Dr. Gawande’s father, describing how after Ram’s death, the family travels along the Ganges river to spread his cremated ashes, as per Indian tradition:

The Ganges might have been sacred to one of the world’s largest religions, but to me, the doctor, it was more notable as one of the world’s most polluted rivers, thanks in part to all the incompletely cremated bodies that had been thrown into it. Knowing that I’d have to take those little sips of river water, I had looked up the bacterial counts on a web site beforehand and premedicated myself with the appropriate antibiotics. (Even so, I developed a Giardia infection, having forgotten to consider the possibility of parasites.)

But for the rest of us, Dr. Gawande has no single prescription. The path forward it seems is for us to move toward a post-Industrialized state where we can use creative, non-institutional forms of medicine to improve our quality of life in the final years. He cites a study by Dr. Chad Boult, a geriatrician with the University of Minnesota, that found that simply having a team of geriatric nurses and doctors see high-risk patients over the age of 70 resulted in a 25% reduction in disability, 50% reduction in depression and actual cost savings by reducing home health service utilization by 40%. Although mortality rates among the control and treatment groups were equivalent, there can be little doubt this points to the possibility of reducing costs and improving outcomes in tandem. Marching toward the Triple Aim through innovative medical treatments and more compassionate care is as good a solution as any.


Next Time: War Plan Orange by Edward S. Miller

Immigrants: We Get the Job Done

Next time: we go to war! I will be reviewing War Plan Orange by Edward S. Miller, a fantastic treatise on the process of planning a war against Japan in the pre-World War II era. If you liked this, don’t forget to sign up below to get this analysis delivered straight to your inbox!

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Personal

A New Turn

It’s exhilarating to be shot at without result.

– Winston Churchill

For the past two years I’ve written about various topics that I’ve found interesting.  If you’ve read some of these so far, I really appreciate it, and hope you found it useful! Going forward, I’d like to try something new.  Instead of picking a random topic, I’d like to pick a book bi-monthly, read it, and analyze it.  Think of it as a souped-up book report, related to the book’s implications for life, business, and healthcare.  If you have recommendations for books find me on LinkedIn and let me know your thoughts!

source

So, there seems nothing more appropriate than starting at the end.  Next month, I will kick off by reviewing Atul Gawande’s incredible bestseller Being Mortal.  Stay tuned…

Entrepreneurship, Personal

On Art as Motivation

The creation continues incessantly through the media of man.  But man does not create… he discovers.

– Antonio Gaudi

I’ve been thinking a lot recently about art — and not only because I spend so much time watching Netflix while my wife studies.  I think about it because mostly, I feel like I am consuming it in the background and am not sure how much I am actually absorbing.  Right now, as I write this post, Friends is on in the background.  Does it comfort me? Do I actually get the jokes? Does it help quell the sound of crickets at night? I don’t know, I just know I instinctively reach for it.

I care about actually making sure I am absorbing what I consume because art has occassionally, well, changed my life.  It’s a trite observation, but I always really enjoy when people talk to me about some piece of history they have read, or some documentary they watched, or even a great piece of music that they listened to that changed their life.

For me, the first time I had one of these life-altering moments was on a trip to Florence.  My wife and I had never been to Italy, and in getting there almost drove our car into Brunelleschi’s Duomo.  Exhausted, excited, and with a too-full itinerary, we headed around town. One of our first stops was the Galleria dell’Accademia, home to Michelangelo’s David.  Even though I really have never had any connection to fine art, I specifically remember that as soon as I entered the main hallway that housed the giant sculpture, my heart stopped.  It felt like I was cresting the top of a roller coaster ride.  Honestly, it caught me by surprise.

giphy
Me Seeing Michelangelo’s David

And on that same trip, it happened for my wife too.  We drove into Rome the following week, having had a long trip up and down the coast of Italy.  It was great, but exhausting, and to top it off the rental car somehow had a lot of damage for which EuroAvis was going to make us foot the bill.  After we crashed at the hotel for an hour, we went to see La Traviata at the Roman Opera House, a show we had bought tickets for long in advance.  I expected to look over and see Kelsey nodding off.  Instead, as the curtain ascended and the crystal staircase levitated onto the stage — replete with a singing Prima Donna — I looked over to see Kelsey crying.  It was the most silent, sweet cry I’ve ever seen.

After returning from Italy, I realized there were things in life that should have had no differing impact on me than a large statue in the Boston Commons or a Broadway musical, but somehow struck a deep deep nerve.  The reason I started off this piece with Gaudi’s quote about returning to the origin and my habituation to Friends is that I think we often turn to music, fine arts, movies, etc. that bring us comfort and relieve stress.  I know I do.  In fact, there are several psychological studies that link prenatal heartbeat tempo to human musicality.  Maybe we seek music that makes us feel like we’re in the womb again! Weird.

But instead, I really want to find the one or two pieces of art that will just connect with me on a “deep, cellular level”[1].  If you have an experience or two that did it for you, please let me know.  Otherwise, I will try to focus on quality over quantity.  I think these experiences are the kinds of things that lead us to avoid the instinct to self-soothe, and help us see the world in a broader, deeper light.

[1] The words of Dax Shepard.  I’m obsessed with his new podcast, The Armchair Expert.

Corporate Strategy, Healthcare, Software Development

Governing AI and Us

Heart of the Buddha, hand of the demon.

– David Lee Roth

Artificial Intelligence has come a long way in the past decade.  When I first started in comp sci, my AI professor started off every semester with the same story

Imagine an AI-powered bomb-squad robot.  This is the latest and greatest equipment.  The robot goes into a shed to defuse a suspicious package that we know will blow up in T-MINUS 10 MINUTES.  The task is simple: drive through the open door, find the package, and encapsulate it so the explosion is contained.  The robot rolls forward through the doorway and stops to re-plan the detonation.  By the time the robot figures out that the walls in the shed are blue, the bomb blows up.

A decade ago, path planning was slow, object recognition largely manual, and AI as a whole much much further behind than our sci-fi dreams would hope.

Then came cloud computing and deep learning.  By throwing pattern matching algorithms against massive web-scale datasets, we could begin to tackle previously intractable problems.  Want to identify cats? Sure, just show a computer a billion cat photos and boom, cats found.  Want to understand the English language? No problem, just send in billions of hours of voice data and computers will find out when you want to jam out to “Britney Spears”.

giphy
AI Can Bluff, But Smiling is Still Hard

And then, the room got dimmer.  AI was scary and not understandable, with many famous folks warning of a coming AI apocalypse.  The end was nigh, and Elon Musk and Sam Altman wanted us to know that everything was not okay (for a fee).  I believe the truth is this: much of what humans do boils down to simple pattern recognition and the early applications of AI are low-hanging fruit that will be over soon enough.  Driving is about recognizing the patterns of the lines on the road, the patterns of street signs out there, etc.[1]  Chess is about making strategic moves within the rules of the game.  Pattern recognition is fundamental to how humans operate in the natural world, and with enough data and advanced statistical algorithms, computers can start to mimic humans in an interesting way.

When I sent an article about AI algorithms being able to bluff in Poker to a colleague, he started to panic.  Oh no! They’re acting human.  Once I gave him my opinion that most poker players actually bluff predictably and this is just another form of pattern recognition, his mind was put at ease and turned elsewhere: if AI is just advanced pattern recognition, and a lot of humans’ interactions with the natural world revolves around pattern recognition, how do we govern the interaction between AI and humans in the natural world? Should an AI behave differently if it’s screening a mortgage application versus recommending shows on Netflix?  If you (like me), think that a lot of the AI fear is overblown and we are just seeing more of routine human behavior being classically disrupted by cheap computing power, then you should want to develop rules around how this technology can be harnessed without causing societal damage.

My response to my colleague was that as a techie, my inclination is that the fewer rules the better for advancing a disruptive innovation at this early stage.  But, given that AI is beginning to have real impact in tangible sectors like healthcare, real estate, and energy, we should define a governance process based on the following principles:

  1. Reuse of Existing Legislative Precedent.  Existing societal problems have existing (albeit imperfect) solutions.  For example, the Fair Housing Act sets out boundaries outlawing the racist redlining practices that were so prevalent in the pre-Civil Rights Era.  Rather than define our values and implementation at the same time, we should look to existing regulations as a basic set of values, and define 21st-century AI-specific implementations.  This would probably lead to regulations such as “input data must be representative of the broader population or be proven to not have any adverse effects on specific protected groups as laid out by the FHA.”
  2. Tax-Free Innovation.  I am a major believer in having carve-outs for small companies or safe harbor for firms that abide by certain rules.  Although this has proven problematic when scammers set up shop as small “whack-a-mole” entities or big companies exploit loopholes (like YouTube avoiding regulation of explicit content on its platform), putting in place compliance frameworks often weakens investor appetite for startups, thereby curbing innovation.
  3. Be Whitelisted to Specific Industries.  The web is permeating through every avenue of our life.  There is no longer such a thing as a “traditional” firm, all firms invest heavily in technology.  In order to avoid broadly dampening harmless activities (such as Netflix’s machine-learning-based recommendation algorithm), the governance should apply to an explicitly chosen set of industries rather than being the default for any algorithms running on “big data”.

Tech firms are coming around to the idea of regulation and there seems to be plenty of precedent for it.  Microsoft recently called for advanced regulation on facial recognition, though the skeptic in me wonders if this is to cement their position as a cloud market leader via a regulatory moat.  Regardless, tighter governance is a better approach to battling AI’s societal disruptions than trying to put the genie back in the bottle.

[1] In fact, the biggest barrier to wider adoption of fully autonomous vehicles is getting humans (who can be inherently unpredictable) off of the damn road