Ethical behavior signals a strong management

09:02 PM CDT on Sunday, September 30, 2007

Some time after the dinosaurs were pressed into petrochemicals, Cary M. Maguire became president of Maguire Oil.

Through decades of character-forming investment decisions and business deals, this renowned businessman has dealt with every stripe of human being - some good, some outstanding, and some who were lower than oil deposits.

To encourage improved business behavior, Mr. Maguire endowed ethics centers and chairs at various educational institutions and the Library of Congress. Although the study of business ethics is quite the rage today, Mr. Maguire's endowments were initiated before the Enrons and WorldComs of this decade.

Mirroring the mission statement for the Maguire Center of Ethics and Public Responsibility at Southern Methodist University, Mr. Maguire strives to "recognize, honor and model ethical behavior."

Endowing an ethics center may seem a risk-free pursuit compared with a lifetime of digging holes in the ground hoping for oil. But there is risk. Some naysayer constituents worry that a start-up ethics program constitutes an admission that the institution previously was unethical - like the homeowner who sees the installation of a fire hydrant in his yard as only serving to attract dogs.

But as management aficionado Socrates once observed, "The unexamined life is not worth living." And so it is that through his decades of dry holes and successes, Mr. Maguire has analyzed those characteristics that tend to signal strong management.

Mr. Maguire adheres to the following precepts in conducting his own business and investing in others.

Ethical approach: A sale of a product or idea is often dependent on value, education and trust. Indeed, branding is all about creating consumer trust.

Trust can be the difference in making or losing a sale. For instance, a consumer may be willing to pay more to purchase the same car from one dealer over another, sensing that the dealer of choice is more trustworthy.

A company can do a lot to develop a reputation for trust when it faces adversity. Johnson & Johnson, for instance, proved that the public could trust its product when it pulled Tylenol from the shelves as soon as the tainting scare hit in 1982.

Tylenol's quick and ethical reaction served to enhance consumers' trust in the product, turning a potential migraine into long-lasting relief. From Richard Nixon to Martha Stewart to "oil companies that spend money on a dry hole to postpone investor disappointment," it's the cover-up that gets people and businesses in trouble.

As Mr. Maguire sagely urges: "When you have a problem, and everyone will, face up to it early on."

Realistic accounting: Mr. Maguire has continuously maintained his and his company's books by both the cost and mark-to-market accounting methods.

That is, his books reflect securities at closing prices, oil assets at a current market value based on outside reserves reports, etc.

And he's had his books audited by an outside firm from year one. Indeed, while sitting on old but not forgotten InterFirst Bank Dallas' board of directors, Mr. Maguire pressed the bank to engage its first outside auditor.

Mr. Maguire resigned one week before the bank's merger with RepublicBank Corp. because he believed that RepublicBank wasn't writing down the true value of assets fast enough based on mark-to-market accounting. Ultimately, the merged bank failed at taxpayers' considerable expense.

Problem-solving via listening, imagination and creativity: Every problem in business is a puzzle. The solution requires stepping back and concentrating on which pieces fit where.

Usually the solution is derived from assessing where the other side is coming from and how to find a middle ground. Listening is important - "you don't learn much while talking," Mr. Maguire says.

According to Mr. Maguire, the only realistic way to solve a problem is to first reduce the problem to its essence in as few words as possible. Then articulate points of agreement, promoting a positive air of collaboration. Only then should you turn to the narrowed points of disagreement.

In trying to find middle ground, Mr. Maguire advises: "In negotiations, if you're going down one alley and that doesn't work, then find another. Persevere."

In one example, he and another investor owned all of a company's shares. But their vision for the company was, shall we say, not shared, causing them to agree that one needed to sell out to the other.

Unfortunately, they couldn't agree on two essentials - who would be the seller and a fair price per share.

In a display of wisdom and fairness worthy of Solomon, Mr. Maguire suggested that he name the price per share, and the other investor could choose whether to be seller or buyer at that price. And so they agreed.

Maintain liquidity and good credit: The oil bust taught Mr. Maguire to maintain liquidity for a rainy day or, in that case, gale force winds.

Liquidity and good credit enable a business to ward off inevitable storms and remain patient for cycles to turn in the investor's favor. Lack of liquidity can force unfavorable sales in down markets.

Mr. Maguire always maintains a standby line of credit in case of emergency or unexpected opportunity, even though he rarely needs it and it's expensive to continue. He decries going to a bank, cowboy hat in hand, signing whatever exorbitant covenants the bank requires.

This is pretty risk-averse advice from someone in such an uncertain industry. Patience and perseverance - like a dinosaur aspiring to turn his carbon into valuable oil and gas deposits.