Archive for the ‘Business’ Category

Donald Trump, a walking conflict of interest

May 3, 2017

I doubt if Donald Trump could get through a single day, certainly not a single week, without being involved in a conflict of interest.

The Atlantic magazine has drawn up a list of 39 issues (and counting) in which decisions by President Trump will affect the profitability of the Trump Organization.

Maybe the biggest one is the federal investigation of the Deutsche Bank, which holds $300 million in IOUs from the Trump Organization.

U.S. banks wouldn’t give Trump credit after he defaulted on debt when his Atlantic City casinos declared bankruptcy, so he turned to the Deutsche Bank, which is under investigation by the U.S. Department of Justice on charges of  laundering money for Russian mobsters.  Attorney-General Jeff Sessions said he will continue this investigation impartially.  We’ll see,

The Department of Labor and Internal Revenue Service have been conducting investigations as to whether the Trump Organization violated labor law and tax law.   Will these investigations continue?  We’ll see.

The Trump Organization’s lease agreement with the General Services Administration for the Trump International Hotel property contains a provision that no elected official will be part of the lease.  But the GSA has ruled this doesn’t apply to Trump because he’s no longer officially head of the business.  An impartial decision?  Maybe.

Trump’s business is involved in business deals with politicians and close relatives of politicians in India, Indonesia, the Philippines, Turkey, Dubai and Argentina.  Will Trump, if necessary, make decisions that threaten those relationships?  We’ll see.

And then there are daughter Ivanka’s women’s fashion business and son-in-law Jared Kushner’s family real estate businesses.

Never even mind the penny-ante stuff—Donald Trump charging the Secret Service for use of Trump facilities while they guard him and his families.

Any of these conflict would be highly controversial as a stand-alone issue.  The problem is that there are so many issues it is impossible to remember any one of them.

The problem is that there is hardly any decision that Trump or his appointees can make—whether in foreign policy, tax policy, labor policy, environmental policy or consumer protection—that will not in some way affect the profitability of the Trump businesses.

(more…)

The case against the Internet

March 29, 2017

Double click to enlarge. Source: Visual Capitalist.

Andrew Keen’s book, The Internet Is Not The Answer (2015), which I recently finished reading, is a good antidote to cyber-utopians such as Kevin Kelly.

Keen says the Internet is shaping society in ways we the people don’t understand.  Some of them are good, some of them are bad, but all are out of control.

Like Kelly, he writes about technology as if it were an autonomous force, shaped by its own internal dynamic rather than by human decisions.  Unlike Kelly, he thinks this is a bad thing, not a good thing.

He does not, of course, deny that the Internet has made life easier in many ways, especially for writers.   But that is not the whole story.  He claims that—

  • The Internet is a job-destroyer.
  • The Internet enables business monopoly
  • The Internet enables surveillance and invasion of privacy.
  • The Internet enables anonymous harassment and bullying.
  • The Internet enables intellectual property theft

Keen quotes Marshall McLuhan’s maxim, “We shape our tools, then our tools shape us.”

What he doesn’t quite understand is that the “we” who shape the tools is not the same as the “us” who are shaped by them.

Or to use Marxist lingo, what matters is who owns the means of production.

Technology serves the needs and desires of those who own it.  Technological advances generally serve the needs and desires of those who fund it.

Advances in technology that benefit the elite often serve the general good as well, but there is no economic or social law that guarantees this.   This is as true of the Internet as it is of everything else.

Let me look at his claims one by one—

(more…)

Your life on the Internet is an open book

March 28, 2017

Double click to enlarge

How Google Tracks You—And What You Can Do About It by Jeff Desjardins for Visual Capitalist.

(more…)

Donald Trump’s real Russian connections

March 18, 2017

If you were looking for links between Donald Trump and Russia, you’d be more likely to find them by investigating Trump’s sleazy business dealings than his 2016 election campaign.

His connections with racketeers in the construction business in New York City and in casino gambling in Atlantic City, N.J., were well-known before the election, so it wouldn’t be surprising that he would have dealings with Russian racketeers and oligarchs as well.

I don’t claim—and none of the writers of the linked articles below claim—that there is proof that Donald Trump broke any specific law.   The significance of his associations and business deals are as evidence by which the public can judge his character.  Of course we voters had plenty of evidence about his character before the 2016 election.

I think it’s possible that Trump’s views about Russia prior to the election were influenced by his Russian cronies.   I favor an impartial investigation into whether Trump had any improper ties with Russia.

But I also think this investigation would be pretty much a footnote to what is going on now.  We don’t have to speculate about what Trump’s policy toward Russia will be.  We see it in action.  Trump caved in to the anti-Russia war hawks.  Regardless of what Trump’s motives may or may not be, this is a bad thing, not a good thing.

LINKS

The Curious World of Donald Trump’s Private Russian Connections by James S. Henry for The American Interest.

Did Russian Oligarch Rybolovlev Bailout Trump in 2008? an interview of James S. Henry for the Real News Network.   (Hat tip to O)

The Florida mansion that Donald Trump sold to a Russian billionaire now torn down by Glen Garvin for McClatchy newspapers.

Donald Trump’s Worst Deal by Adam Davidson for The New Yorker.

How Did an Alleged Russian Mobster End Up on Trump’s Red Carpet? by David Corn and Hannah Levintova for Mother Jones.

400 years of poor white people in America

January 17, 2017

When I was a boy in western Maryland in the 1940s, I sometimes heard people say things like, “The Negroes aren’t so bad, compared to the poor white trash.”

The underlying meaning was that it was part of the nature of things for black people to be poor and marginalized, but there was something deeply wrong with white people who let themselves sink to the same status.

9whitetrash-iisenberg780670785971I just finished reading a book, WHITE TRASH: the untold 400-year history of class in America by Nancy Isenberg (2016), that tells how these attitudes go back literally to the first settlements at Plymouth Rock, Jamestown and before, and persist today.

Today’s poor rural Southern white people of today may literally be lineal descendants of the convicts, debtors, beggars, orphans, homeless vagrants and unemployed vagrants who were shipped to England’s North American colonies in the 17th century.

Many were victims of the enclosure movement, in which wealthy landowners privatized common lands formerly used by small or tenant farmers, leaving them without an obvious means of livelihood.  These displaced poor people were regarded as useless—much as workers replaced by automation are regarded by economists and corporate executives today.

The prevailing attitude then was that families were “the better sort” or “the meaner sort,” that they were “well-bred” or “ill-bred”.   Today we think of “good breeding” as applied to individual persons as meaning the person has been taught the proper way to behave.   Back then, roughneck poor people were regarded as inherently inferior.

Our American tradition is that the seeds of our nation were planted by freedom-seeking New England Puritans and adventurous Virginia Cavaliers.  This is true, but only a half-truth.    The ships that brought them to the New World also brought penniless, landless English poor people, who were regarded as surplus population.

What set the English poor white colonists apart was that they were not given land.  They were intended to be servants and field workers.  When black African slaves turned out to be more efficient and exploitable workers than indentured English servants, they lost even this role.

Even so some of the poor whites acquired property and a measure of social status.   White Trash is about the descendants of the ones that didn’t.

They fled to the western frontier of settlement.   But the wealthy and well-connected had already obtained title to most of the frontier land.  Poor whites became squatters.  They contended that clearing, improving and planting land gave them the right to have it; title-holders disagreed.  This was the source of much conflict both in the colonies and the newly-independent United States.

(more…)

Can Trump make U.S. industry great again?

December 1, 2016

Donald Trump in his campaign promised to reverse the decline of American manufacturing.

Can he do it?  I’m willing to be pleasantly surprised, but I don’t think so.

President-elect Trump’s proposed economic policies are the same as what most Republicans and many Democrats have been advocating for 30 years or more—lower taxes, less regulation, fewer public services.

None of these things has stopped the increase in U.S. trade deficits or the increase in economic insecurity of American workers.

Trump did speak against the Trans-Pacific Partnership agreement, promised to renegotiate other trade agreements and threatened to impose punishing tariffs on China and Mexico in retaliation for their unfair trade policies.

I myself am in favor of rejecting the TPP and renegotiating trade treaties.  This would be a step forward.  But it would take more than this to rebuild the hollowed-out U.S. manufacturing economy.

China, Japan, South Korea and most nations with flourishing industrial economies use trade policy as a means of strengthening their economies.

Their leaders, like Alexander Hamilton in the early days of the United States, seek to build up their nations’ “infant industries” under those industries are strong enough to stand on their own feet.

When foreign companies seek to sell these nations their products, their governments demand that the foreign companies not only set up factories in their countries, but that they employ native workers and transfer their industrial know-how to the host countries.  The USA does nothing like this.

(more…)

Donald Trump’s sleazy business record

September 4, 2016

87aa7546_donald-80s[This was originally posted July 13, 2016.  Links added since then are in italics.]

Candidates for political office can be better understood by their records than by their rhetoric.

Donald Trump has never held public office, but his record as a business owner and promoter tells what to expect from him if he ever does.

His record is one of success through use of political influence, and at the expense of investors and customers who believe his claims.

I’ve compiled links to articles about Trump’s business record.   They should be a good warning to voters who think Trump’s business success qualifies him for high political office, or who think that Trump can be trusted to act in their interests.

Probably there are links to more articles than you, as a busy person, have time to click on.  I recommend that you skim the headlines to get a general idea, and click on whatever seems interesting to you.  I particularly recommend the articles by David Cay Johnson, who has been following Trump for many years.  Or, if you have time to read only one a couple, read the following:

Trumpology: A Master Class, a group interview of Trump biographers Wayne Barrett, Michael D’Antonio, Harry Hurt III, Gwenda Blair and Timothy L. O’Brien by Susan B. Glasser and Michael Kruse for POLITICO magazine.

‘The Making of Donald Trump’: David Cay Johnston on Trump’s Ties to the Mob and & Drug Traffickers, an interview by Amy Goodman for Democracy Now.

(more…)

Highest-paid CEOs are mostly below-average CEOs

July 27, 2016

CEOpayvsstockholderreturenp1-by114-payper-16u-20160724183306

I always thought, based on long-ago conversations with compensation expert Graef Crystal, that the relationship between chief executive officer pay and corporate profitability was random.

But a new study indicates that there is a relationship—a negative one.  The higher-paid CEOs actually deliver less for stockholders than the lower-paid CEOs do.

What’s odd about this is that CEO compensation packages are structured so as to reward them for gains in stock prices.

It’s an example of Goodhart’s Law in operation.   All other things being equal, the rise and fall of a company’s stock price, relative to other companies in the same business, is a measure of how well a company is doing.  But there are ways for a CEO to manipulate the stock price that has nothing to do with company performance.

One is stock buy-backs.  These increase the price of the remaining shares.  But often the money might be better spent on making improvements in the company’s operation.

Another is layoffs or shifts to low-wage locations.  These immediately boost a company’s profitability by reducing the expense of wages.  But sometimes it costs the company in the long run to have the work done by workers who are low paid, but also less skilled, less well-trained and less loyal to the company.

All CEOs of big companies are well-paid—and should be.  Maybe what the chart tells us is that there are those who spend time negotiating or manipulating even higher pay that they should have spent tending to their businesses.

Maybe the best plan is to hire or promote a good person to be CEO, pay that person adequately and leave them alone.  A CEO who needs an extra incentive to do a good job shouldn’t be a CEO.

LINK

Highest-paid CEOs run worst-performing companies, research finds by Peter Yeung for The Independent (UK)

Obama, lame-duck GOP Congress may enact TPP

July 20, 2016

Republicans in Congress refused to vote President Obama’s Supreme Court nominations on the grounds that he is a lame duck.  But it’s highly likely they’ll join with him to enact the odious Trans Pacific Partnership agreement right after the November elections, when he and they really will be lame ducks.

Pac-Money-400x266When Congress voted to allow a “fast track” decision—an up or down vote with little time to discuss the agreement—it was Republican votes that provided the margin of victory.

“Fast track” means there’s no way to stop a lame-duck vote on TPP, even if anti-TPP candidates sweep Congress in the November elections.

All it would take is that President Obama, House Speaker Mitch McConnell and other TPP supporters are brazen enough.

Bernie Sanders opposed the TPP.  Donald Trump opposes it.  Hillary Clinton promoted it when she was Secretary of State, but she says she now has reservations about it.  Her supporters on the Democratic platform committee voted down a plank that would criticize the TPP so as not to embarrass President Obama.

The TPP—and the related Transatlantic Trade and Investment Partnership agreement and Trade in Services Agreement—are corporate wish lists written into international law.

These limit the power of governments to legislate and regulate to protect workers, consumers and the environment, grant drug and media companies new intellectual property rights, and create panels of arbitrators that can impose penalties on governments for depriving international corporations of “expected profits.”

So it’s fitting, in a way, that these anti-democratic trade agreements are likely to be enacted into law by a President and members of Congress who may not have run for re-election or been voted out of office.

(more…)

Monopoly power and what to do about it

July 2, 2016

The trouble with the U.S. economy is monopoly power.

Concentrated business power means less consumer choice, less opportunity for entrepreneurs and greater concentration of wealth.

Senator Elizabeth Warren

Senator Elizabeth Warren

Senator Elizabeth Warren described the problem very well in a speech on Wednesday.  If you care about this issue, I strongly recommend that you click on the first link below.

She noted that five banks have been designated as “too big to fail” by the Federal Reserve Board and the Federal Deposit Insurance Corp.

But that situation is not limited to the banking industry.  Four airlines (down from nine in the past 10 years) control 80 percent of all airline seats.  If American, Delta, United or Southwest were to be in danger of ceasing operations, could there be any doubt that the government would want to keep them flying at all costs?

There’s another problem with concentration in the transportation industry, and that is the incentive to abandon small and remote communities and concentrate services in a few hubs.   The second article linked below describes how concentration in the airline, railroad and trucking industries has harmed small cities in the Heartland.  “Flyover country” wasn’t always flyover country.

Concentration means less consumer choice.  Warren pointed out that more than half of Americans who with Internet or cable television service use Comcast.  Yet, she said, a third of U.S. citizens who theoretically have access to high-speed Internet service can’t afford it.   Americans pay more than Europeans for Internet service and get worse service.

(more…)

Donald Trump’s real art of the deal

June 14, 2016
Trump's Castle Casino on Atlantic City Boardwalk

Trump’s Castle casino on the Atlantic City Boardwalk

Last September I wrote a post speculating that Mitt Romney and Carly Fiorina may have been responsible for more human suffering than Donald Trump. I take that back. Based on what’s come out about Trump University and a New York Times report on Trump’s casino operations, I have to say that Trump’s business record was by far the worst of the three.

I assumed that Trump’s failures were honest business failures, such that most business owners and investors experience over the course of their careers.  Since then I have learned better.

Basically Trump set up businesses with other people’s money that were so loaded with debt that they were doomed to fail.  But he extracted a lot of money for himself before that happened.  Here are highlights of what the New York Times reported:

His audacious personality and opulent properties brought attention — and countless players — to Atlantic City as it sought to overtake Las Vegas as the country’s gambling capital. But a close examination of regulatory reviews, court records and security filings by The New York Times leaves little doubt that Mr. Trump’s casino business was a protracted failure.  Though he now says his casinos were overtaken by the same tidal wave that eventually slammed this seaside city’s gambling industry, in reality he was failing in Atlantic City long before Atlantic City itself was failing.

But even as his companies did poorly, Mr. Trump did well. He put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses and other payments. The burden of his failures fell on investors and others who had bet on his business acumen.

In three interviews with The Times since late April, Mr. Trump acknowledged in general terms that high debt and lagging revenues had plagued his casinos. He did not recall details about some issues, but did not question The Times’s findings.  He repeatedly emphasized that what really mattered about his time in Atlantic City was that he had made a lot of money there.

(more…)

Disinvesting in America, and what to do about it

March 21, 2016

Corporate executives and holders of financial assets—I’ll call them “capitalists” for short—are ceasing to invest in American industry.

BusinessCutsBack-1x-1

Instead corporations are investing their profits in buying back stock, which automatically increases the value of the rest of the stock.  This, by the way, were an illegal form of stock market manipulation prior to 1982.

buybackbonanza-1x-1

Meanwhile American manufacturing jobs are going away.

Manufacturing-Employment

(more…)

A venture capitalist’s argument for inequality

January 20, 2016

Paul Graham, a venture capitalist and essayist, thinks economic equality can be a good thing, not a bad thing.

Since the 1970s, economic inequality in the US has increased dramatically.  And in particular, the rich have gotten a lot richer.  Some worry this is a sign the country is broken.

Graham-cover3I’m interested in the topic because I am a manufacturer of economic inequality.  I was one of the founders of a company called Y Combinator that helps people start startups.

Almost by definition, if a startup succeeds its founders become rich.  And while getting rich is not the only goal of most startup founders, few would do it if one couldn’t.

I’ve become an expert on how to increase economic inequality, and I’ve spent the past decade working hard to do it.

Source: Economic Inequality

He goes on to write about how rich rewards are necessary to motivate people to found start-up companies, and how successful start-ups are good for everybody.  I think that is true as far as it goes, but I don’t think it addresses the real driving forces behind today’s increasing inequality.

I’ve written a good bit on this web log about economic inequality, but my concerns have been less about successful business founders and more about the following:

  • Wall Street speculators who get rich at the expense of the public, sometimes by breaking the law, and not only go unpunished, but shift the burden of their losses onto the general public.
  • Executives of business corporations, government agencies and so-called non-profits who milk the system to increase their own incomes and the incomes of their cronies, while imposing austerity on those who do the actual work.
  • Crony capitalists whose wealth is based on personal connections, especially with politicians and government officials, rather than creating value.
  • Rich people whose share of national wealth, as documented by Thomas Piketty in Capital in the Twenty-First Century, tends to grow automatically, all other things being equal.

All this is made worse by rich people who turn their wealth into political power, which they use to destroy the social safety net, starve public services, weaken labor unions and subsidize corporations..

That said, Paul Graham raised a fair point, which I want to discuss.  He pointed out that there is a difference between those who get rich by playing zero-sum games at other people’s expense and whose who get rich by creating value.

I agree.  I think there also is a difference between those who participate in zero-sum games with each other, such as those who participate in high-stakes poker games, and those who participate in zero-sum games with the general public, such as the sub-prime mortgage speculators.

People who create value deserve to be rewarded.  People who make a maximum effort and an important contribution to society deserve more than people who make a minimum effort and a routine contribution.  But I don’t think the rewards system should be structured so that the former get virtually everything and the latter virtually nothing

(more…)

The passing scene – October 9, 2015

October 9, 2015

Welcome to a New Planet: Climate Change, “Tipping Points” and the Fate of the Earth by Michael T. Klare for TomDispatch.

How the Trans-Pacific Partnership Threatens America’s Recent Manufacturing Resurgence by Alana Semuels for The Atlantic.

Harvard’s prestigious debate team loses to New York prison inmates by Laura Gambino for The Guardian.

10 Stories About Donald Trump You Won’t Believe Are True by Luke McKinney for Cracked.com.  Donald Trump is notable not as a business success, but as a promoter with the ability to distract attention from failure.

Can Community Land Trusts Solve Baltimore’s Homelessness Problem? by Michelle Chen for The Nation.  (Hat tip to Bill Harvey)

The Second Amendment’s Fake History by Robert Parry for Consortium News.  (Hat tip to my expatriate e-mail pen pal Jack.)

The Afghan hospital massacre: Snowden makes a brilliant suggestion by Joseph Cannon for Cannonfire.  Why does the United States not release the gunner’s video and audio?

Ask Well: Canned vs. Fresh Fish by Karen Weintraub for the New York Times.  Canned fish is probably better.  (Hat tip to Jack)

Shell Game: There Is No Such Thing as California ‘Native’ Oysters, a book excerpt by Summer Brennan in Scientific American.   The true story behind Jack London and the oyster wars.  (Hat tip to Jack)

Overall, CEOs don’t earn their big paychecks

April 14, 2014

o-CEO-PAY-570

The following is by Mark Symonds for Forbes

It isn’t every day that academic research comes along to tell you something you really wanted to hear and that you suspected was the truth all along.  In this case it’s about the long running debate around top executive pay.

A recent paper by J. Scott Armstrong of the Wharton School and Philippe Jacquart of France’s EMLYON, seem to have finally established that paying top dollar simply doesn’t get a better job done.  And, in fact, it might actually get a worse one done.

According to Armstrong and Jacquard, while there is plenty of evidence that financial incentives can be effective in motivating people to do mundane and boring tasks, individuals do the more interesting and challenging stuff…well, because it’s interesting and challenging.

Perversely, they say, very large financial incentives may actually hinder top performance. The paper argues there is strong evidence that individuals can become fixated on incentives and either become limited in their thinking, unable to digest and adopt new ideas or alternately become convinced that they will achieve the goal automatically so do not need to try as hard as they might otherwise.  Whatever the outcome, every other stakeholder from the more modestly earning employee to the corporate stockholder loses out.

And finally the research also suggests that we might not really be getting the brightest and best talent at the top because the tools and processes used to identify candidates are either limited or downright faulty

There is simply too much emphasis on past performance, personal recommendation, unstructured interviewing, an unwillingness to ask really difficult and searching questions and that more dangerous selection criterion of all – gut instinct. Worryingly, it seems that the headhunters and in-house recruiters charged with hiring occupants of the corner office may be relying too much on perception and too little on good, hard facts.

The paper points out that CEOs who win prestigious industry awards constantly out-earn those that don’t.  Yet the stocks of the companies the award winners head up consistently under-perform in comparison to those of their less publicity hungry peers.  Perhaps because the latter spend their time running their businesses well instead.  [snip]

Unlike many academics, who might shy away from coming up with a solution, EM Lyon’s Jacquart is one willing to give the obvious if uncomfortable answer – namely that current incentive models need to be abandoned and overall executive pay should be reduced.

And he’s also ready with a counter to those who will doubtless argue that this will make it impossible to recruit the right people and bring major banks and corporations crashing to the ground.

“Yes, of course this may make it more difficult to recruit very senior individuals from outside an organization, at least in the short term. However it would force businesses to focus more on the development of the talent it already has, the talent that is more likely to be more loyal to and understanding of its aims, goals and methodologies.”
[snip]

via Big Company CEOs Just Aren’t Worth What We Pay Them.

(more…)

Chipotle profits by investing in employees

April 12, 2014

The Chipotle Mexican-style restaurant chain enjoys good profits and good growth, while paying its employees generously and promoting from within.

220px-Chipotle_Brandon_Its current policy began about nine years ago when founder Steve Ells and then-COO Monty Moran visited the restaurants, and notice that the one that were best-run were all managed by employees who had started as restaurant crew members and worked their way up.

They decided to make that into a system, and reward restaurant managers, not for achieving set targets of holding wages and other costs down, but for mentoring employees and training them to be managers.

Click to enlarge.

Click to enlarge.

Why do so many managers ignore the examples of Chipotle, Costco and other companies and instead grind their employees down instead of building them up?  

I am reminding of a saying Bertrand Russell once made about human nature, When people are mistaken as to what is in their interest, the course they believe to be wise is more harmful to others than the course that really is wise.

(more…)

Costco: doing well by acting decently

June 12, 2013

CostcoLogo

Retail store chains face tough times because of the slow economy and competition from Amazon and other on-line sellers.  But Costco Wholesale’s sales are up, its profits are up and its stock price is up.

What’s noteworthy about Costco, according to Bloomberg Businessweek, is how well it treats its employees.   “If you treat customers with respect and employees with respect, good things will happen,” CEO Craig Jelinek told Bloomberg.

Costco is the second largest retail store chain in the United States, and is fast gaining on Wal-Mart, the largest.  Here are some facts and figures about the two chains.

  • Average hourly pay for Costco employees is $20.89 an hour, versus $12.67 for Wal-Mart.
  • 88 percent of Costco employees have company sponsored health insurance, in which they pay less than one-tenth of the cost of the premium.  Wal.Mart says “more than half” of its employees have health insurance.
  • CEO Craig Jeninek got a base salary of $650,000 a year, plus a $200,000 bonus, plus stock options worth $1.2 million.  Wal-Mart’s CEO got a base salary of $1.3 million , plus a $4.4 million cash bonus, plus $13.6 million in stock.
  • While Costco is doing well, Wal-Mart is in trouble
Costco's stores are no-frills

Costco’s stores are no-frills

Costco overall is a no-frills operation.  It has no public relations department, and Bloomberg reporters were able to talk to the CEO directly.  Costco does not hire managers out of business school.  Its managers are promoted from within.

Its prices, according to Bloomberg, are competitive with Amazon, which Costco managers see as its chief competitive threat.  Profit margins are thin.  About 80 percent of Costco’s gross profit comes from its annual membership fee.

Costco is not necessarily an exception, according to Bloomberg.  Nordstrom, The Container Store, Sephara, REI and Whole Foods Market, all know for treating employees well, are also doing well in the marketplace.  It is true that Amazon, which is not known for treating employees well, also is successful, but maybe they could still be profitable if they treated their warehouse workers better.

A lot of people assume that being callous toward people is always realistic and treating people decently is always naive, but Costco’s experience shows this isn’t so.  Treating employees as assets instead of costs can be good business price.  Bertrand Russell once wrote that if human beings all knew what was in their self-interest, most would be better people than they are and the world would be a better place.

(more…)

Why lobbying is a highly profitable investment

May 24, 2013
Double click to enlarge

Double click to enlarge

Hat tip to occasional links & commentary.

CEO pay and stockholder return: the disconnect

May 24, 2013

mk-cd251a_ceopa_g_20130515224302

I leave it to statisticians to tell me whether there is a relationship between the profitability of companies and CEO pay.  I just note that the CEO on this chart whose company was the most profitable, Jeff A. Stevens of Western Refining, got one of the smallest compensation packages, and the CEO with the biggest compensation package, Larry Ellison of Oracle, headed a company that lost money.

It is true, of course, that executive pay is related to the size of the company and other factors besides annual return on equity, so there may be other rankings in which these figures seem to make sense.  I’d be interested to know them.

Hat tip to occasional links and commentary.

The high cost of politics

May 23, 2013

ElectionBought

Hat tip for the infographic to United Republic.

(more…)

Why good people can’t find jobs

May 23, 2013

The U.S. Bureau of Labor Statistics finds in its surveys that there are about 10 people looking for work for every three jobs that are open—more than twice the proportion of job-seekers before the recession.  Yet many employers say there is a labor shortage.  They say they have jobs that they can’t find people to fill.

Peter Cappelli, director of the University of Pennsylvania’s Wharton Center for Human Resources, says that the problem is not unqualified job-seekers.  The problem is bad  hiring practices.

First, he says, when employers advertise for employees, they cast too wide a net.  They get a tidal wave of applications, more than anyone can possibly consider, and so they have to look for reasons to thin out the applications.

Some throw out all applications that use certain buzzwords, or omit certain buzzwords.   Some throw out all applications which indicate that the person is older than a certain cutoff point (even though this is illegal) or that are worded so as not to reveal the person’s age.   Many throw out all applications from people who don’t have the exact skills required, and many throw out all applications from people not currently employed.

Double click to enlarge.

Double click to enlarge.

So if the only person you are willing to hire is someone already doing that exact same job for some other employer, and you don’t want to pay that person a premium wage to lure them away, then, yes, you are going to have trouble filling that post.   I’m exaggerating to make a point, but what I hear from my friends who are looking for work confirms what Cappelli says.  Many employers have arbitrary filtering systems that reject job applications from good people.

Another problem, as Cappelli sees it, is that employers don’t want to hire people they would have to train.  They don’t want to spend the money to train people because they’re not confident that the trainee will stay with them long enough for them to get their investment back.  In fact, the better trained someone is, the better chance the person has of getting a better job elsewhere.

Job-seekers these days spend their own money trying to acquire qualifications they think employers want, but often those qualifications are a mismatch.

According to the theory of how a free-market economy is supposed to work, this isn’t supposed to happen.  According to economic theory, if there is a shortage of workers to fill a certain type of job, then wages for that job will rise until supply equals demand.  The fact that this isn’t happening suggests that theory doesn’t always apply to the real world.

Part of the reason employers are so slow to fill job openings is that the reason they advertise for new workers is merely to appease their over-worked existing staffs.  As long as they are going through the motions, they can tell their exhausted existing workers that they are doing the best they can.

Cappelli has ideas for making things better, including the following:

  • Have employers work with community colleges and vocational high schools to provide training to qualify employees to do specific jobs.  Most American cities and counties want to attract industry and jobs.  This would be a better way to do it than offering tax abatements and other special privileges.
  • Promote from within.   An employer’s best workers are more likely to stay with a company if they have hope of a future within that company.  Taleo Corp., a “talent management” company, reported that, in recent years, two-thirds of all job openings, even in large companies, were filled by hiring from without.  A generation ago, all but 10 percent of openings were filled by promotion or transfer from within.

Cappelli also suggests giving new hires a learner’s wage while they receive on-the-job training.  This could be good, but it offers possibilities for abuse.   Unscrupulous employers could hire cycle after cycle of learners and never give them full pay.  In this age of widespread wage theft, this is a realistic concern.

Click on Why Companies Can’t Find the Employees They Need for an article by Cappelli in the Wall Street Journal.   In fairness to him, his tone is less strident than mine is.

Click on Why Good People Can’t Get Jobs—What You’re Up Against for a review of Cappelli’s book, Why Good People Can’t Get Jobs:  The Skills Gap and What Companies Can Do About It.  I haven’t read the book.

The profit motive is not an ethical principle

May 15, 2013

Here are links to articles I found interesting about what happens when the profit motive overrides professionalism, social responsibility or obedience to law.

Coming Corporate Control of Medicine Throws Patients Under the Bus

Yves Smith describes the corporate model for medical care, which is to set a limit on how much time a physician can see an individual patient, so as to maximize the number of patients seen in a day.  This means weeding out patients with complicated problems or without good insurance.

Who’s Getting Rich Off Student Loans?  College Endowments

Daniel Luzer of the Washington Monthly tells how college endowment funds invest in student loan servicing and collection companies such as Sallie Mae.   The perverse incentives are that the higher the college tuition, the greater the interest payments and the more profitable the investment.   Sallie Mae is the nickname for a government lender that was privatized in 2004 and became SLM Corp.

When Your Boss Steals Your Wages: The Invisible Epidemic That’s Sweeping America.

Lynn Stuart Parramore of AlterNet reports on the practice of wage theft, which includes not paying for all hours worked, not paying overtime, not paying minimum wage and confiscation of tips.   A survey of 4,000 low-wage workers in New York, Chicago and Los Angeles found that 26 percent were paid below minimum wage and 76 percent were denied overtime pay for working more than 40 hours a week.

The Vicious New Bank Shakedown That Could Seriously Ruin Your Life.

Lynn Stuart Parramore reports on how banks such as Chase JP Morgan are committing the same kinds of abuses in collecting credit card debt that they used in collecting mortgage debt.  What they do is “robo-sign” lawsuit claims without checking records to make sure the information is correct, and give “sewer service” (throw the legal papers in the sewer)  of the claim to the debtor.  The result is that debtors’ wages are garnished even though, in some cases, they may be paid up, and lots of fees and charges are added to their debt without their knowledge.

A crazy idea from Walmart management

April 1, 2013

Sam Walton, the founder of Walmart, was a business genius.  But his heirs, to put it as kindly as possible, are not.

iflPt65OEETUWalmart has been foundering of late because it is so understaffed that its employees are not able to keep the shelves of its stores fully stocked.  This is wrongheaded.

Now Walmart management is seriously thinking about giving its customers discounts in return for delivering on-line orders within their ZIP codes.  This is deeply crazy.  No doubt their lawyers and insurance companies will talk them out of actually attempting this.

The Walton heirs are a good argument for keeping estate taxes high enough that important business enterprises do not fall into the hands of the idiot children of great entrepreneurs.  The operation of the free market will catch up with Walmart eventually, but not until a lot of good, hard-working people are hurt.

Click on Walmart faces the cost of cost-cutting: Empty shelves for a report from Bloomberg Business News about the company’s troubles.

Click on Wal-Mart may get customers to deliver packages to online buyers for a report from Reuters about management’s bogus solution.

(more…)

Newspaper revenue falling off a cliff

September 12, 2012

The chart and article below are from the American Enterprise Institute’s public policy blog.

The blue line in the chart above displays total annual print newspaper advertising revenue (for the categories national, retail and classified) based on actual annual data from 1950 to 2011, and estimated annual revenue for 2012 using quarterly data through the second quarter of this year, from the Newspaper Association of America (NAA).  The advertising revenues have been adjusted for inflation, and appear in the chart as millions of constant 2012 dollars.  Estimated print advertising revenues of $19.0 billion in 2012 will be the lowest annual amount spent on print newspaper advertising since the NAA started tracking ad revenue in 1950.

The decline in print newspaper advertising to a 62-year low is amazing by itself, but the sharp decline in recent years is pretty stunning.  This year’s ad revenues of $19 billion will be less than half of the $46 billion spent just five years ago in 2007, and a little more than one-third of the $56.5 billion spent in 2004.

Here’s another perspective: It took 50 years to go from about $20 billion in annual newspaper print ad revenue in 1950 (adjusted for inflation) to $63.5 billion in 2000, and then only 12 years to go from $63.5 billion back to less than $20 billion in 2012.

Even when online advertising is added to the print ads (see red line in chart), the combined total spending for print and online advertising this year will still only be about $22.4 billion, less than the $22.47 billion spent on print advertising in 1953.

via AEIdeas.

I was fortunate to be able to retire from newspaper reporting in 1998.  Otherwise I’d be in the same position as the auto workers or steel workers a few decades ago.  My local newspaper and former employer, the Democrat and Chronicle here in Rochester, N.Y., is gradually being hollowed out, as resources are shifted to the Internet and specialty publications.  Good reporting is being done, but by a staff that is being stretched thinner and thinner.   The problem is that you can get certain types of information over the Internet free and instantaneously that you would have to pay for and wait to get from newspapers—sports scores, stock prices, weather reports, movie schedules, classified advertising.

I still subscribe, though.  I recently suspended my subscription out of irritation with the D&C subscription service, but accepted their offer for renewal after a few weeks of trying to get along without a daily newspaper.  American print newspapers historically have been important to binding together geographic communities and giving them an identity.  I wonder if on-line publications can fill the same role.  I spend more time each day on-line than I do reading my local newspaper, but my information about Rochester comes mainly from the D&C and City newspaper, the city’s alternative weekly.

Hat tip to Rod Dreher.

Companies do better with women on board

August 10, 2012

Companies with women on their boards performed better in challenging markets than those with all-male boards in a study suggesting that mixing genders may temper risky investment moves and increase return on equity.

Shares of companies with a market capitalization of more than $10 billion and with women board members outperformed comparable businesses with all-male boards by 26 percent worldwide over a period of six years, according to a report by the Credit Suisse Research Institute, created in 2008 to analyze trends expected to affect global markets.

The number of women in boardrooms has increased since the end of 2005 as countries such as Norway instituted quotas and companies including Facebook Inc. added female directors after drawing criticism for a lack of gender diversity.  The research, which includes data from 2,360 companies, shows a greater correlation between stock performance and the presence of women on the board after the financial crisis started four years ago.

“Companies with women on boards really outperformed when the downturn came through in 2008,” Mary Curtis, director of thematic equity research at Credit Suisse in Johannesburg and an author of the report, said in a telephone interview.  “Stocks of companies with women on boards tend to be a little more risk averse and have on average a little less debt, which seems to be one of the key reasons why they’ve outperformed so strongly in this particular period.”

via Bloomberg.

I wouldn’t over-generalize about women being more risk-averse than men, but the Clinton, Bush and Obama administrations would all have been better off if they’d heeded the warnings of Brooksley Born, Sheila Bair and Elizabeth Warren about the dangers of giving Wall Street free rein, and then bailing them out unconditionally.   They were all up against a macho posturing that is more common among Washington officials and Wall Street speculators than it is among men whose jobs actually require physical strength and physical courage.

Where human affairs are concerned, the greater the diversity of viewpoints and life experiences within the decision-making group, the better the decisions are likely to be.  I imagine that a board of directors with a female majority and one or two men would make better decisions on average than an all-female board, but it will be many decades before there are enough examples to do that study.

Click on Companies perform better with women on board for the full Bloomberg article.  Hat tip to kottke.org.