Media

American Society / Corporate Behavior / Media / Political / law — 0 Comments
9
Aug 10

Following the Hurd

On Friday, the stock market shook with the news of the announced resignation of Mark Hurd, CEO of Hewlett Packard. The man credited with reinvigorating Hewlett Packard resigned as chief executive of the technology giant after an investigation of his relationship with a female contractor.  That investigation revealed that he violated the company’s business standards.

On Friday, HP expanded that Mr. Hurd, 53 years old, didn’t violate the company’s policy regarding sexual harassment.  He  had however, submitted inaccurate expense reports intended to conceal what the company said was a “close personal relationship” with a female consultant.  See H-P Chief Quits in Scandal

In a memo to all HP employees, acting CEO Cathie Lesjak provided more detail:

“Mark had failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets.” See H-P’s Hurd Reaches Settlement with Contractor

The Wall Street Journal later learned that Mr. Hurd and the contractor reached a settlement on the sex harassment claim.

Some Thoughts on Corporate Culture

A mystique surrounds CEOs of large, publicly traded corporations.  The CEO of such a corporation is as close to a feudal lord as one can get in 21st century America.  A CEO is surrounded by a myth making machine.   A VP of Public Affairs burnishes the image of the CEO as powerful and successful, minimizes setbacks and trumpets the smallest of victories.  The CEO can access airplanes and limousines, play golf at the best clubs, dine and stay where he or she chooses with little or no oversight.   Backed by corporate political action committee contribution funds, he or she has instant access to Senators, Congressmen and even the White House.   A fawning and largely uncritical cadre of financial media pundits and Wall Street analysts clamor for opportunities to meet and interview a CEO.

Since corporations are a hierarchy and a CEO sits atop the organizational pyramid, subordinates are generally fawning.  Fearing unemployment, few want to tell the CEO (the emperor?) he or she is wearing no clothes, or should be staying clothed at critical moments.

Absolute Power Corrupts

“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.”  Lord Acton

With few to hold up a critical mirror, CEOs eventually start to believe their own press clippings and may even succumb to believing in their own infallibility.   Forgetting that it is often the office and rank that is being saluted, not necessarily the occupant, the tendency is for the CEO to believe they can do no wrong.

Blind spots eventually develop.  As with CEO’s, we have seen it with our more notorious Congressmen who believe that the tax laws do not apply to them, it is alright to have sex with subordinates, or obtain below rate mortgages.  Eventually comes the belief that the “rules do not apply to me.”  To their dismay, they find out often publicly and harshly that rules do apply.

Some Final Thoughts

I am always amazed when stories like Mr. Hurd’s reach headline status:

-          Why do CEOs risk so much for so little?  Mr. Hurd made $24.2 million dollars in 2009 and was slated to make $100m over the next three years.   How much could the dinners and trips have cost Mr. Hurd if he had paid from his own pocket?

-          Companies have strict policies on sex harassment and expense reporting.  Numerous high level executives have been publicly disgraced and lost their positions for such violations.  Mr. Hurd is a very smart man. Why did he not learn from others’ experience?

-          I have lectured on the EEOC Sex Harassment Guidelines.  The best defense in the workplace is to avoid dating any subordinate or contractor.  Once any personal relationship develops and then breaks off, it is difficult to prove that no harassment occurred in this unequal power relationship.

-          Why did HP’s internal audit function not find the expense report abuses and report them? Why did it take the complaint of the contractor for the Board to order an investigation?

-          Why did Mr. Hurd receive over $12m in severance pay when the Board found expense reporting improprieties?  Isn’t that behavior a “for cause” termination? (Note –if Mr. Hurd had a contractual right to severance regardless of this behavior, that itself is problematic.)

Not all CEOs behave like Mr. Hurd.  Certainly, and in my experience, many are ethical and hardworking.  But unfortunately, Mr. Hurd’s tale occurs far too frequently in corporate America.

Outside corporate governance groups have mindlessly over focused on pay practices, staggered voting and other relatively minor issues.   Focus should be on close corporate Board of Director supervision of CEO and senior executive behavior.   Aside from all the logical and obvious reasons for eliminating this behavior is the other external one as well:  the market generally reacts swiftly to this chicanery.  On Friday, HP stock was down a significant 9.7 %.  Following the Hurd can be quite costly.

GD Star Rating
loading...
  • Share/Bookmark
American Society / Media / Political — 0 Comments
29
Jul 10

Silence and Mystery

I don’t usually read the Sunday New York Times Styles section.  This headline, however, caught my attention: Whatever Happened to Mystery? Author Ben Brantley’s thesis is that we live in an age of media over exposure.  He rhapsodizes about a simpler time when media constituted film, radio and television, and the occasional paparazzo in vain stalked Jackie Kennedy or Princess Diana.  With personal websites, Facebook, YouTube, Twitter, MySpace and other social media, we and celebrities are exposed to one another 24/7.  In a 2010 media world, Greta Garbo could not have burnished her mysterious, sphinx-like image.

Why do we even care about this issue?  Mr. Brantley hits on an important point:

“The problem is that, people being people, 24-hour visibility will ultimately breed if not contempt, then weary familiarity. That’s why the tabloids need a new generation of cover girls and boys every year or so, a breeding process facilitated by reality television.”

Media over-exposure leads to boredom, contempt and ultimately disengagement. While Mr. Brantley concentrates on celebrity culture, I worry less about that world and more about our overexposed political and economic culture. Whatever Happened to Mystery?

No Sense of Place

In 1986, Joshua Meyrowitz, now a Professor of Communication at the University of New Hampshire, wrote a profound book, No Sense of Place.  Observing the societal effects of television, he looked first at its effect upon children.  Television had the ability to expose children to the adult world of secrets.  The average soap opera offered a daily peek into sex, adultery, homosexuality, lying and other “secrets” sheltered from children of earlier generations. Second, television broke down gender barriers as women were exposed to sports, war, medicine and other male bastions, and men were exposed to the emotional, private sides of life generally associated with women.

Television, Mystery and Politics

Importantly, Meyrowitz discusses the de-mystification or our political leaders:

…prior to the saturation of television, our political leaders were treated as a “mystified presence,”  a status above the common citizen, as it was easier to control the flow of information that represented who they were and what they did.  Although television is a useful tool for our politicians in creating this status, it “tends to mute differences between levels of social class.” Meyrowitz terms this “a double-edge sword,” as over exposure of a political leader diminishes his power, with a continuous presence rendering the person more ordinary, with less mystique. Granted, over exposure is difficult to balance with under exposure:  without media presence a leader has minimal power, yet with exceeding presence he or she loses power.  See Wikipedia entry.

Because of the immediacy of information to all common citizens about all issues, we are now able to closely inspect our leaders’ images, demystifying them as we go.

The white hot intensity of television or film allowed for the presidential victory of a former actor, Ronald Reagan, and probably would have prevented the election of a wheel chair bound Franklin Roosevelt.  And who can forget the election of Arnold Schwarzenegger as governor of our most populous, most media-saturated state?  In his case, can we even separate political power as metaphor or physical reality?

Conversely, television has the power to destroy, as we come to devalue what is overly familiar. The country was ready for Reagan to depart the White House well before the end of his eight years in office.

Obama and the Media

My subjective view is that Obama over communicates.  Using a teleprompter, which lessens both spontaneity and credibility, Obama seems to be on television every morning opining about the economy, Afghanistan, the Gulf oil spill, unemployment or some other topic.  I also find in his speeches more heat than light, meaning we are getting a lot of verbiage, but not much insight.  That I think is the failing of this Administration, the inability to succinctly and candidly educate the public on the need for economic stimulus, health care or financial reform. When one has a torrent of communication from the White House, it is impossible to differentiate the mundane from the meaningful.  The public becomes either apathetic or cynical.

Silence is Golden and Effective Too

My father was a war veteran and a quiet man.  He always seemed to have many thoughts behind his enigmatic smile.  And when he had something to say those around him tended to listen.  In matters of discourse, he taught me that less is more.

Meyrowitz pointed out how today a celebrity, even one as beloved as Bill Cosby, could actually last only a short time on television.  Perhaps Obama and other celebrities should start ratcheting back their media exposure.  Would Roosevelt have discussed the New Deal on ABC’s “The View”?

I don’t need to hear about the latest adventures of the First Dog or the schedule of the First Family’s Acadian vacation, but I do need to know why we are spending trillions of dollars that we do not have,  and why the economy is headed for another recession.

GD Star Rating
loading...
  • Share/Bookmark
American Society / Banking / Business / Economics / Media — 0 Comments
4
Jan 10

What Went Wrong? Disconnecting Effort and Reward

A decade of financial frustration has just ended with US equity returns negative for the entire period.  This is the first time this has occurred, and that includes the 1930’s America’s Great Depression.  A grim statistic indeed; what went wrong?

The United States began and thrived as a nation of ideas, imagination, hard work and grit.  Its hallmark has been a population that saved and produced.  Contrary to these admirable national character traits, Alan Greenspan and his protégé Ben Bernanke utilized low interest rates and a “fire hose” of liquidity to solve financial crises. From this folly, we now suffer negative consequences detrimental to the very fabric of American Society. See Shredding the Social Fabric.

The Age of Get Rich Quick Schemes

America has always had a history of “get rich quick schemes:” the California Gold Rush, the Florida land boom and the “roaring”1920’s stock market.  These booms and inevitable busts were damaging, but did not change America’s basic character.  Even the Great Depression did not change our basic values of thrift and hard work.  But the toxic combination of Greenspan’s easy money, and ubiquitous information and spin disseminated via the internet and financial television elevated “get rich quick schemes” to national obsessions.

  • The Internet Boom – A poster child and pitiful example for the boom and bust was MicroStrategy.  From its initial offering in June 1998 it rose to a market cap of $26b.  The founder was found guilty of numerous SEC violations.  Still in business 11 years later the company has a market cap of $1.1b.See Search for Redemption.
  • Day Trading – Closely allied to the internet boom was the wave of day traders who quit their jobs to spend full time trading stocks.  Many achieved temporary riches only to suffer huge losses after the internet boom turned to bust. See Downfall of a Day Trader.
  • House Flipping – To offset the internet stock market crash, the Fed adopted a policy of ultra low interest rates.  In the ensuing housing frenzy from 2002-2007, speculators flipped houses and even raw land.  The disastrous results are now obvious.
  • Credit Derivatives – Experts from Myron Scholes, the Nobel Prize winner for his work on valuing credit derivatives (Black-Scholes model) to Warren Buffet view credit derivatives as financial weapons of mass destruction. These esoteric instruments were key factors in the recent financial crisis and many believe the problem has not been fixed. Indeed derivatives became a source of large profits for Wall Street firms, often at the expense of their own clients.  See Banks Bundled Debt, Bet Against It and Won.
  • Ponzi Schemes – Disregarding obvious warning signs, sophisticated investors lured by consistent above market returns were ultimately defrauded by Ponzi schemers like Bernie Madoff, Allen Stanford and others.
  • Wall Street Bonuses – Instead of holding capital in reserve in anticipation of the next financial crisis, Wall Street firms are paying record bonuses this year equal to fifty percent or more of revenue.  This easy money is even more galling as we used taxpayer money to stave off bankruptcy in these same firms.  The lure of easy money trumped prudent financial strategy. See Wall Street on Track to Award Record Pay.

Disconnecting Effort and Reward

The last decade has made fools out of the average working person.  Why work at a $50,000 a year job, stay out of debt and try to save 10% of your income while others reap outsized rewards with seemingly little effort?   Low cost, virtually unlimited lending enticed many to “day trade”, “house flip” and engage in a consumer orgy.

I have chronicled the obvious problems of too much debt.  We will take a long time, if ever, to work our way out of this morass.  More damaging was the disconnect between effort and reward.  Financial schemes replaced production.  We invested scarce societal savings in these get rich schemes which make economic recovery even more difficult.

And too, our precious human capital has been compromised, as resources were diverted from teaching, engineering and management programs into MBA’s in finance.  A prestigious job on Wall Street became way more attractive than teaching, engineering, entry into a manufacturing company or even law or medicine.  This was not just a financial crisis, but a crisis of American character.  I hope it does not take ten years to return to fundamentals and our core national values.

GD Star Rating
loading...
  • Share/Bookmark
Banking / Economics / Financial / Foreign Policy / International Finance / Media / Political — 0 Comments
27
Dec 09

Seven Black Swans a-Swimming

The holiday spirit lingers. With all due respect to the Twelve Days of Christmas, let’s see if we can predict seven potential black swan events for 2010.  But we have a conundrum. According to Nassim Taleb (author: The Black Swan: The Impact of the Highly Improbable), “black swan events” are high-impact, hard-to-predict and rare events that are beyond the realm of normal expectations, that is, statistical outliers. Thus, if we are able to predict them, they may not be true “black swan events.”

I will leave that issue for philosophers.  Let’s focus on possible “disturbances in the Force” which can render useless the carefully orchestrated Obama, Geithner, Bernanke engineered recovery.

Black Swan Event Gestation

The government and mainstream media have been extremely helpful in identifying “black swan events.”  These even have usually been hidden in plain sight and then reported by main stream media.  Then we have a noted academician or high government official contextualizing the event to make the public believe that the occurrence of the event is improbable or lunacy. Examples: Ben Bernanke reassures the public that sub-prime losses were well contained and no threat to the economy. Tim Geithner proclaims that the largest banks were well capitalized.

In the former Soviet Union the joke was that nothing was true until it was officially denied.

2010 Candidates for Black Swan Event of the Year

And now for an Academy Award moment, the nominees please:

  • The Dubai World default – We are again receiving governmental reassurance that the Dubai World is well contained. Hearing this has eerie echoes of the sub-prime crisis being well contained. Why? We live in a highly interdependent worldwide financial system: if a butterfly flaps its wings in Beijing… you know the rest.
  • The US defaults on its sovereign debt – The Obama administration provided financial guarantees to everyone from American Express to GE to money market funds to Citicorp.  More than 2 trillion dollars of new US Treasury debt will need to be financed in 2010.  Is there enough money in the world to fund these deficits? What if a Treasury auction fails; that is, there are not enough bids to cover the amount offered?  That is like having a garage sale and nobody coming by.
  • The FDIC runs out of money – One commentator believes that the FDIC ran out of money in October 2009.   The FDIC is trying to muddle through by not aggressively closing problem banks.  Yes, the Treasury could step in and loan the FDIC money, but review the second bullet above on the potential for sovereign debt default.  Also, modern day bank runs occur via the internet rather than through heartwarming scenes a la It’s a Wonderful Life.  There is no George Bailey and no honeymoon money to bail out the money center banks.
  • Commercial real estate implosion – Commercial real estate – office buildings, hotels, regional and strip malls and multi- family dwellings have had a price decline of 41% since 2007. Rents have declined in all categories. Commercial real estate heavily utilizes short-term financing which require frequent re-financing at three, five and seven year intervals.  Re-financing needs will double from 2009 to 2010. Already stressed regional banks financed much of the growth in commercial real estate. Next year could be the perfect storm as both public and private sectors tap a limited pool of capital.
  • State, county or municipal insolvency – Multiple states are nearly insolvent. The same problems exist at the county and city levels.  States cannot declare bankruptcy, but counties and municipalities can.  A cascade of these bankruptcies would tax state treasuries.  A series of state defaults would put pressure on the Federal government for another set of bailouts.  Municipal defaults would send shockwaves through all financial markets.
  • Pension Fund Failure – Public and private pension funds are massively underfunded.  See Underfunded Pension Plans: The Next Shoe to Drop. Next year could be the year of recognition.  PBGC has limited resources to bailout the private sector funds and there is no PBGC coverage for public pension funds.  Multiple pension fund failures loom on the horizon.
  • War in the Middle East – Iran has shown contempt for international efforts to stop its nuclear development program.  Israel or the United States may be forced to take military action.  Iran has threatened to retaliate by closing the Straits of Hormuz, the international oil shipment passage way for Gulf oil.  Oil prices could soar crippling the world economy.

The Sky is Clouded with Black Swans

Given the nature of black swan events, I cannot predict that any will land. It is even more difficult to determine whether or not they are even black swan events at all.  Other worthy candidates: dollar collapse, earthquakes and volcanoes, sovereign debt default in Portugal, Spain, Italy, Ireland, Greece, the United Kingdom (or all these countries), Euro collapse, depression in China, constitutional crisis in the United States.  The list is long and fraught with possibility.  Or the black swan event could be that nothing happens at all.

Still hope spring eternal, keep checking the skies and Happy New Year.

GD Star Rating
loading...
  • Share/Bookmark
Business / Economics / Financial / Media / Political — 0 Comments
20
Nov 09

The Macroeconomic Picture or Connecting the Dots

In our current world of finance and economics specialization is rampant to the point of being emblematic of our age.  There are specialists in credit derivatives, traders of all stripes, equities, bonds, distressed debt, emerging markets, private equities, municipal bonds, high yield bonds, repos and a host of other financial vehicles.  Since each of these specialists operate in their own “silo” there are few big picture specialists who can look at the entire macroeconomic environment and connect the dots.   Listening to Bloomberg Radio yesterday morning, noted bank analyst Meredith Whitney returned to her bearish stance on both bank stocks and the stock market in general. Ms.Whitney said she examines all economic data.  Unfortunately, Ms Whitney is a rarity on Wall Street and in Washington.   The mantra has been “green shoots and recovery” but coverage has ignored reality.   Examine recent financial headlines which rarely make the mainstream media:

Connecting the Dots

To stem a financial collapse after the bursting of the internet bubble, the Federal Reserve dropped interest rates to near zero.  This sparked the boom in real estate and the “FIRE” economy: finance, insurance and real estate.  As a nation we exported our productive capacity off shore and we embraced a real estate, retail and service economy.  This bubble burst in 2008. The cycle of ever rising asset prices and credit prices ended.

The above headlines suggest an economy seriously unbalanced with collapsing commercial and residential real estate prices, already high and increasing unemployment, contracting bank and consumer credit, trade imbalances, deficits at the federal and state level, collapsing personal finances and falling tax collections.

Too Much Debt and Too Little Income

The hangover from a decade of financial excess is too much debt and too little income to support that debt.  The rest is mere commentary.  Trying to re-inflate the FIRE economy bubble will ultimately prove to be costly and futile.  The country needs more people like Meredith Whitney who recognize that the emperor has no clothes and realize that there will be continuing tough times ahead.

As they used to say on Hill Street Blues:  “Hey let’s be careful out there.”

GD Star Rating
loading...
  • Share/Bookmark
American Society / Business / Media — 0 Comments
11
Nov 09

Thinking More and Reacting Less

I began working for a large corporation as a junior attorney.  Wanting to be successful, at meetings I watched my bosses, mostly senior managers as well as my peers.  The skill that seemed to be most prized was the ability to contribute a quick, confident answer to questions posed by senior executives.  My boss was a master at the quick, confident answer.  In many cases, however, his answers were dead wrong.  But, amazingly, after these oracular statements no one questioned his answer and more curiously, co-workers accepted his responses as gospel.  Bold confident statements led me to believe that the way to success was to be: “often wrong, but never in doubt.”

Media and the Digital Age

Media and the digital age have only further validated and intensified this syndrome: a shooting occurs on a military base, the stock market soars, the dollar declines, the President of Iran threatens to unleash nuclear weapons against Israel or the House passes a health care bill.  Apparently instant analysis is required.  Fox, MSBC, Bloomberg and other media outlets each have a gaggle of experts always on call to provide instant commentary and analysis.  Moments after the tragic shootings at Ft. Hood, the networks had former generals, and psychiatrists, and professors specializing in terrorism and Islam on the air providing instant analysis.  The government cautioned that a full investigation was necessary and that the public should not jump to conclusions, but there was the media “jumping” away.

Email, BlackBerries and Instant Messaging

Once upon a time when clients and managers communicated via letters, one would wait for an assistant to open the mail, prioritize the most important matters, and place mail neatly in folders in an “in-box.”  A day might consist of reading incoming letters and pleadings, research, drafting a response, reviewing the response with colleagues and superiors and sending a well thought out coherent response.  If one was ambitious, one might answer three to four letters and pleadings per day.

Computers, email and BlackBerries have radically changed workplace communication.  Now managers and lawyers each day are bombarded with a hundred or more emails, text messages and instant messages.  Like an insistent child, each of these inquiries “demands” an immediate response.  Gone are thoughtful, well reasoned, literate responses.  Depending on dexterity and a thumb free of tendinitis, responses are produced at the speed of light.  Unanswered emails are a badge of shame.  Responses can run from “thx,” “ttyl,” to more eloquent two sentence responses.  There is no pause for mature reflection, conferences with colleagues or re-draft of thoughts or writing. The new mantra is ready, aim, respond.

Think More React Less

Clearly, as a society we would get better answers and make better decisions regarding our most pressing problems if we were more thoughtful.  Instant analysis and immediate answers in meetings should be questioned.   Bring back thoughtfulness, modesty and the ability to begin one’s response with “I don’t know” or “let me give this more thought and get back to you.”  A little modesty and humility would go a long way. In short, we should think more and react less.

GD Star Rating
loading...
  • Share/Bookmark