• Debit card fee: pay $5 per month to use your own money


    Bank of America announced this week that they plan to charge people who use debit cards $5 per month beginning in 2012.  According to reports at Fox Business News  and video clips at MyFox Boston, these fees are in response to the Dodd-Frank Act's Durbin amendment. This amendment reduced the "swipe fees" charged to vendors who accept debit cards from an average of over $.40 per swipe to a maximum of $.21 per swipe.  Bank of America, who controls the largest single share of debit card traffic--15%--may lose over a billion dollars in fees as a result. 

    Reaction to this announcement has been negative from customers.  The Los Angeles Times reported that several interviewees planned to switch to smaller banks or credit unions that did not charge these fees.  In the video at the MyFox Boston link, Scott Brown, a Republican Senator from Massachusetts (who voted for the Dodd-Frank bill), encourages unhappy customers to find another bank. 

    I find it interesting and a bit baffling that any bank would initiate an action that might discourage the use of debit cards.  At the beginning of my career, when I worked for one of the big accounting firms, bank clients complained how expensive it was to handle cash.  Visionary bank managers longed for the day when transactions could be handled by computers, without incurring the labor costs, security costs, logistics costs, and storage costs of managing huge volumes of cash.  Business customers were charged for depositing excessive amounts of cash, especially coins and small bills.  A recent article in an international version of The Nation online addresses this as a current issue in Nigeria.  But slowly--like the frog who fails to jump out of the pot that is brought to boil incrementally--consumers have absorbed fees and high interest rates charged by banks for bank accounts and credit cards.  Now banks want to charge for debit cards as well. 

    The business environment will shape how the market receives this new fee.  If other big banks charge similar fees; if there is no government regulation of these fees; if consumers are complacent about their bank accounts and do not shift their accounts elsewhere, in a few years these fees will be the new normal.

    Follow up:

    1.  Read the link or other source describing the Dodd-Frank Act. What are three reforms in that bill that benefitted consumers directly?

    2.  According to the Los Angeles Times article, how could a Bank of America customer use his or her debit card, but avoid being charged the new debit card fee?  Will you be able to take advantage of this special deal? 

  • Unpaid "interns" sue "Black Swan" producer for back pay

    On Wednesday, September 28, 2011, two former interns filed suit against Fox Searchlight studio. [Reported in the New York Times, "Interns, Unpaid by a Studio, file suit"]  One of the interns, Alex Footman, a Wesleyan graduate, worked as a production intern.  He reported that his duties consisted of making coffee, taking and fulfilling lunch orders, cleaning the office and taking out the trash. The other intern, Eric Glatt, an MBA from Case Western, said he prepared back-up for purchase orders, ran errands to obtain signatures, and created spreadsheets.  

    from bunkerlaw.com, linked below 

    The plaintiffs feel that the work they did was outside the scope of what constitutes an "internship" position, under federal labor laws.  These parameters include:

    • the internship should benefit the intern 
    • the intern should not be doing work that takes a paid job away from a real, paid, employee
    • the intern needs to receive training that is rigorous and progressive, comparable to an academic course
    • the employing company must derive no economic benefit from the presence of the intern

    These parameters have been violated, according to Footman and Glatt's lawsuit.  They feel they were working as employees and are suing for back pay and to stop Fox Searchlight from using other interns without compensation. The lawsuit is also seeking class-action status for more than 100 interns that Fox Searchlight used in the same way.

    The NYT reports that many observers (film studios and attorneys) justify the practice of using interns as Footman and Glatt were used because it is widespread.  Even Glatt commented, "If you want to get your foot in the door on a studio picture, you have to suck it up and do an unpaid internship." 

    A more complete discussion of the parameters for what constitutes an internship can be found in the article "Unpaid Internships and Small Businesses" at bunkerlaw.com

    Follow up:

    1.  In a tight economy, many students feel that the best way to get a job is to obtain an internship between semesters. Have you participated in an unpaid internship? Do you know someone else who has?  Has the unpaid internship led to a paying, career-quality job, either directly or indirectly? 

    2.  In the NYT article, the author, Steven Greenhouse, says that some young people claim that unpaid internships give a special advantage to what group?  Do you agree?  How could this advantage be mitigated?

  • A new technology to sustainably fuel our cars?

    Americans love their gasoline-powered cars.  But reliance on foreign oil doesn't help our economy, it doesn't help our environment, and it is getting more and more expensive. 
    Ethanol has been suggested as an alternative fuel for decades, but it has been economically unfeasible to produce the ethanol from corn, due to its competing uses as food.  Other potential raw materials, called "cellulosic biomass"--switchgrass and wood pulp--use acids that leave by-products that are difficult and costly to remove.  A bigger economic problem are the expensive enzymes needed to convert the woody fibers into useful sugars that are digestible by micro-organisms.  These micro-organisms convert the sugars into ethanol.

    According to a New York Times article (September 27, 2011, by Matthew L. Wald), if a business could solve the problem of breaking down the wood pulp and other fibrous materials in an economical (and, presumably, patentable) way, then that business would see a growing market for its technology.  [ the article is linked here ]


    wood pulp chips

    It seems that Renmatix, a company based in Georgia, may have developed a technology that will do this.   Their solution?  Water.  They have developed a two-step process using pressurized containers and water that is so hot that it is in a state called "supercritical."  Their process changes the woody, non-edible waste into useful sugars.  These sugars can then be sold to other companies that will process them further into ethanol. An animation of the process is linked to the Renmatix homepage. 

    Renmatix is opening a new research center in King of Prussia, Pennsylvania to develop the technology for processing cellulosic biomass on a large scale. Currently they are processing three tons per day of wood pulp.  But this is not the millions of gallons of production that would be required to make this a commercially successful undertaking. How to implement mass production of this process may present a significant challenge.

    Follow up:

    1.  Look at the Renmatix link.  What is the brand name that they give their low-cost process of producing the cellulosic sugars? 

    2.  Explore the Renmatix site. According to the "Markets" portion of their site, what is the output of cellulosic biofuels that will be required by the US Renewable Fuel Standards by 2022? 


  • Kindle Fire: Amazon's new tablet

    Amazon launched a new tablet--the Kindle Fire--on Wednesday, September 28th 2011.  According to many Web sources, including Dailytech.com and SFGate this 7-inch tablet runs on Android 2.1 technology, and will include streamlined access to all of the content sold by Amazon now.  A special deal is being offered to Amazon Prime customers.   The tablet will sell for $199, and will be shipped starting in November.

    Because of its links to media content, the Kindle Fire is being considered by many to be the first viable competitor to Apple's iPad.  Here is a short pro-Kindle YouTube video, based on Forrester Group research, from "Mickeleh's Take":


    Other observers see drawbacks to the Kindle Fire tablet , as reported in the following links:



    Tech-business historians might remember the competing technologies from a few decades ago, when videotapes and videotaped movies first became available. Film aficionados viewed Sony's Betamax format as delivering better visual quality, but eventually the number of movies available on the VHS format enticed consumers to buy VHS hardware to play the content they wanted. 

    Amazon's link to media content may make the Kindle Fire a viable competitor to the already established Apple iPad. Pricing may also be a factor in how the technologies compete.

    Follow up:

    1.  When you make decisions about technology, what are the major factors you consider?  Are they "quantitative" or "qualitative"? (see the links on yesterday's  blog about junk food)

    2.  Which of the following do you own?: 

    • iPhone or other smartphone
    • iPod or  other brand MP3 player
    • iPad or other tablet
    • laptop computer
    • desktop computer

    Do the functions on these devices overlap?  

    On what devices (these or other) are you most likely to listen to play: Music?  Music videos? Games? Audiobooks? Movies? TV?  
    What do you think is the most cost-effective and satisfying configuration of devices for the tasks you use? 

    3  What does DailyTech.com say is Apple's current market share?  What products are the other competitors? 

    4. How many Kindle Fire tablets does Mickeleh (Forrester Group) say might be sold?

  • Is junk food cheaper?: choosing data to form conclusions


    "Is Junk Food Really Cheaper?"  This is the question Mark Bittman asks in the Sunday Review section of the New York Times.  The researchers or reporters who claim that junk food is cheaper are usually framing the comparison on the basis of "cost per calorie."  For example, take the typical "junk food" meal containing:  a signature burger, fries, and a soda.  On the other hand, a healthy food example might be composed of vegetables, fruits and lean meat with no added fats.  The equivalent amount of calories in the healthy food menu would cost you more money, because the volume of fruits, vegetables and lean meats would be so much larger than the volume of the junk food meal.

    However, if the two meals were compared on the basis of nutrients per dollar spent, the healthy meal would often come out ahead.  Bittman also points out that upping the calories in the healthy meal with olive oil also levels the playing field in terms of cost per calorie.

    It is possible to find the outlier "deal" in terms of fast food specials, but in terms of feeding a family of four, Bittman offers these comparisons:

    McDonald's burgers and nuggets (4 meals including fries and sodas):  $28
    Chicken, vegetables, salad, and milk, home-cooked: $14
    Rice and beans with bacon, green pepper and onions, home-cooked: $9

    The price difference is dramatic: why would people want to convince themselves that fast food is cheaper?  Bittman concludes that it is really a matter of attitude and framing the issues around obtaining the food.  Cooking feels like work.  Buying fast food feels like being taken care of.  

    In financial analysis terms, this means that the "qualitative" factors-of time, of personal needs for care, of avoiding work-are more important in the decision to purchase junk food than the "quantitative" factors, such as absolute cost, or cost per nutrient.   The longer term quantitative and qualitative factors relative to health and body weight also may be ignored.

    In addition, this article illuminates a central issue in financial analysis: different conclusions can be drawn from one given set of data,.  Establishing what is relevant (calories vs. nutrition) can change the conclusion reached as to which is more expensive.  Percentages can be manipulated by changing the denominator of any fraction.  For example, ideal calories per meal could be a denominator vs. actual calories consumed.  

    Every article using costs or percentages can be scrutinized through a critical thinking filter.  You can look at the data, do some calculations, and draw your own conclusions.

    Follow up:

    1.  How much do you spend on food per day?  If you don't know, first, make a "guessimate."  Then, keep a food diary for three typical days and see what you find out.

    2.  What conclusions, according to the article did a 2009 study by Scripps Research Institute, can be drawn about hyper-processed foods?

    3.  If you want to read further about some of the choices an analyst has in presenting statistical data, read How to Lie With Statistics by  Darrell Huff.



  • Meg Whitman named CEO of Hewlett-Packard


    Meg Whitman

    Meg Whitman was named the new CEO of Hewlett-Packard on Thursday, September 22, 2011, just after the stock market was closing.  She replaced Leo Apotheker, who resigned as CEO and member of the board.   Read the article by Nick Wingfield and Quentin Hardy on the NYT website.

    Hewlett-Packard had been generally satisfied with the business decisions made by Apotheker, which included plans to split off the personal computing business from the corporate software business, and the purchase of the British software company, Autonomy.  What the executive board members were not pleased about was the way Apotheker communicated his actions both within the company and to outsiders, and the way he executed corporate management strategy.

    According to the New York Times article linked above, Hewlett-Packard sought Meg Whitman for several reasons:

    • her experience as the CEO of eBay, a large and complicated company
    • her ability to manage corporate leadership through difficult transitions
    • her communication skills with the financial markets
    • her understanding of customers' needs

    In a statement, Hewlett-Packard said, "Meg Whitman has the right operational and leadership abilities to deliver improved execution and financial performance."

    Reaction on Friday was mixed.  Check out several sources at CNET News.  

    Follow up:

    1.  What other position has Meg Whitman held with Hewlett Packard?

    2.  What was Hewlett-Packard's stock price at the close of trading on the following dates? [one source: yahoo finance]

    Also look at the volume of trading compared to the days shortly before and after the dates:

    • August 31, 2011
    • September 21, 2011
    • September 23, 2011

    Can you make any educated guesses about the price fluctuations, based on the article or other sources?

  • How do everyday taxpayers help businesses?

    picture from talkingpointsmemo.com TPM

    Elizabeth Warren likes straight talking without hedging.  The video linked below delineates ways in which she feels that corporations benefit from public services funded by regular taxpayers.

    Professor Warren was too controversial to be confirmed as the head of the Consumer Financial Protection Bureau, and had recently returned to her position at Harvard as the Leo Gottlieb endowed Professor of Law. Previously she had been the Chair of the Consumer Oversight Panel of TARP.  She was instrumental in making the language on credit card bills clearly represent the costs.  She also advocated for the changes to laws regarding "overdraft" charges--that often were charges to students who used debit cards...and frequently resulted in multiple $35 overdraft charges on a single day for a visit to a yogurt shop for $3.50, and another charge for a coffee for $2.80...etc. 

    A few days ago, Elizabeth Warren announced she was running for the open Senate seat in Massachusetts that is currently held by freshman Senator Scott Brown . She has held a few personal fundraiser/town hall meetings, where she has generated buzz by talking about how taxpayers support corporations.  Check out the link at: Elizabeth Warren on Class Warfare: There Is No One Who Got Rich On Their Own (video).

    The gist of her talk is this: Corporate investors deserve a "huge hunk" of return on their investments, but the "social contract" requires that they also pay taxes because of the tax-supported benefits that allow them to succeed in business: Highways, Police, Fire, and other support services. 

    As of today, there is no internet response from Scott Brown.

    Scott Brown................................................Elizabeth Warren


    At some point, we hope to know how Scott Brown will respond to Elizabeth Warren's statements about the benefits that American corporations get just by being part of the regulated and protected environment of all US citizens and visitors. 

    Follow up:

    1. What benefits do corporations receive that are funded by taxpayers and provided by local governments?

    2. What are your reactions to Elizabeth Warren's video?


  • Climate Change and Corporate Strategy

    "The Carbon Disclosure Project finds that for the first time, a majority of companies in the United States...'now integrate climate change into core business strategy','' reported Justin Gillis in the posting, "Weaving 'Climate' into 'Corporate" (NYT online). The Carbon Disclosure Project surveyed the 500 largest companies based on Standard & Poor's analysis of market capitalization.  Of these 500 companies, 339 responded to the survey, and a majority of the respondents reported integrating climate change into their business plans.  The report was written by the consulting wing of PricewaterhouseCoopers, one of the Big Four accounting firms.  

    Sixty-four percent (64%) of the responding companies have set greenhouse gas emission reduction targets (up from 32% in 2008). Over 60% of companies report that the money spent on sustainability-related investments have a payback period of three years or less. 

    “Energy costs represent a significant component of operational spending and we are seeing the management of carbon increasingly move into companies’ core business strategies, in order to reduce this overhead," said Paul Simpson, CEO of the Carbon Disclosure Project.  Kathy Nieland, the PricewaterhouseCoopers US sustainable business solutions leader, noted, "Companies recognize sustainability is much more than an environmental issue."

    Although there is still debate about the causes and parameters of climate change, there has been significant movement among business leaders to recognize the cost savings associated with attention to energy matters.

    Follow up:

    1. Justin Gillis mentions that some notable large companies did not respond to the Carbon Disclosure Project survey.  Name these companies.

    2. List the behaviors that a student such as yourself can take to reduce your carbon footprint, or respond to sustainability issues. Can any of these behaviors save you money?  Do any of these cost you money to implement?  If so, can you calculate the payback period? 

  • Grocery workers and stores avert strike

    photo from KPBS online

    According to an LA Times article and other news reports, negotiators for 10,000 grocery workers in San Diego county have reached a tentative agreement.  The grocery chains involved are Ralphs (owned by Kroger), Vons/Pavilions, and Albertsons. A strike vote had been taken a few weeks ago, and both sides had been in the proverbial "marathon" talks.  This settlement was reached several hours after the strike deadline, which was 7:00 pm on Sunday.  The divisive issue involved worker contributions to health care coverage. Rank and file voting is beginning later this week, but ratification is expected to go smoothly.

    Pressure to reach agreement was probably influenced by the memories of the 4-month 2003 strike, which caused devastating losses for both the grocery chains and the workers. Customers shifted their shopping habits to non-union (or unionized stores that were not involved in the strike), and many did not return to the striking chains when the strike was over.  Several workers lost their jobs permanently, and suffered economic hardship due to wage losses throughout the strike.

    Why were the two sides able to settle at this point? What, if anything has anything changed in last few weeks? There have been no financial revelations; no new facts have surfaced. The only thing that changed was that a strike vote had set a strike date, putting a deadline on the time period for coming to an agreement.

    This type of negotiating situation is analagous to a high-stakes game of "who will be the first to blink."  Management had no incentive to grant a concession to workers unless management perceived that they would experience negative consequences if they did not compromise.  The only leverage the workers had was the power to strike and inflict negative economic consequences on their employer--which would also have negative consequences for the workers themselves.

    In environments where there is a large pool of workers who will work as "scab labor," the consequences of striking will be less for management, and the strike is less likely to result in concessions by management. In any event, contemplating a strike is a high-risk situation for both sides.  Financial analysts make projections based on estimates of alternative labor pools, consumer reactions, length of strike, and costs of benefits to help decision-makers weigh the cost-benefit of a strike versus contract concessions. 

    Conflict management and contract decision-making is not always this type of zero-sum game.  Negotiations can also be based on "principled negotiation." Principled negotiation techniques, popularized by the book, "Getting to Yes: Negotiating Agreement Without Giving In" by Roger Fisher and William Ury, can help a business major in a job interview negotiate salary and benefits for a possible career-track position. Since individuals are involved in daily negotiations, developing negotiating skills can make conflict resolution less dependent on brinksmanship and can reduce the associated risk and divisiveness. 

    Follow up:

    1.  What is "scab labor"?

    2.  What is a "zero-sum game"?

    3.  What are four tenets of "principled negotiation"?

  • Netflix to customers: Did you like the price increase? We've got another surprise!!!!

    graphic from the Washington times website, cited below at "Netflix self destructs"

    Huh? This definitely goes under the heading: "What were they thinking?"

    Netflix apologized Monday for last month's price increase (maybe because it cost them a million subscribers?) But then Netflix said that it was splitting its online streaming away from its DVD-by-mail program, which it plans to call "Qwikster."  Hey, why use one website and password, when you can use two?  [HINT: I am being sarcastic, here]  The "buzz" on this business plan is reflected in some of the headlines and articles:



    Netflix, a few years ago, was growing at 25% per year.  Its brand name was well known, and its DVD delivery system seemed extremely convenient...until it got even better with the streaming option. Retail stores such as Blockbuster were really hit by this reliable entertainment provider.  "Netflix" became a household name, and was almost a monopoly in the streaming business--at least it had a huge head start. 

    But on July 12th, Netflix announced a price increase that sent subscribers fleeing, and caused their stock price to plunge 51%, according to the Associated Press (AP) article. This summer, they also lost their content-providing contract with the Sony-owned STARZ entity.  Subscribers saw all of the movies previously provided by STARZ recently disappear from their movie queues. 

    It was odd that the September 19, 2011 announcement that the company was being split into two entities was framed as an apology for the price increase--especially since nothing was done about the increase.  Many analysts feel that anything that makes things harder for consumers is a poor marketing strategy. 

    Still, there are investors who have made money with Netflix and will still hold the stock in hopes of making more.  According to the AP article: "Jeanie Wyatt, the chief investment officer for South Texas Money Management, a firm with $1.9 billion in assets under management, began buying Netflix when it was trading at $120. Her investment was once up 150 percent. Now it's up just 25 percent. She believes the company will continue to perform better than the overall stock market over the next several years, in part because Qwikster will also rent video games by mail--a first for the company."

    Follow up:

    1.  Read Terry Ponick's article at the "Netflix self destructs" link above.  What are three marketing mistakes he notes that Netflix has made?

    2.  Read the article linked above that lists all the names that are similar to "Qwikster."  Which of those products will cause the most confusion, in your opinion?

    3.  Do you (or did you) have a subscription to Netflix? How do you view your movies? DVD? In theaters? Streaming?  On a mobile device or on a computer or television monitor?  What do you see as the future of movie viewing?


  • Risky business: UBS trader charged with fraud

    It has been a bad week for Swiss bank, UBS.  On Wednesday, Sept 16, 2011, UBS discovered a $2 billion problem in unauthorized trades; on Friday a suspect, 31-year old Kweku Adoboli was arrested and charged with fraud.  He had been working as the director of "Delta One" funds. His father, John Adoboli, was contacted in Ghana and said, "From what the reports are saying, it could be that he made a mistake or wrongful judgment." Whether the cause was intentional or accidental, however, the losses threaten both the future of UBS and the reputation of Swiss investment banking, according to the Reuters article linked below. 

    suspect Kweku Adoboli

    Until this week's news broke, European banks had been experiencing a recovery of their reputation from a similar scandal in 2008, when Jerome Kerviel of Societe Generale Bank in France had accumulated over $4 billion in losses, resulting in a prison sentence of 3 years.  Both this week's trades, and the ones perpetrated by Kerviel, were in "derivative" investments as part of a Delta One products team.  In both cases, the internal controls set up by the banks to monitor trades in derivatives and catch problematic transactions were weak and ineffective.  

    convicted fraudulent trader Jerome Kerviel

    "It is amazing that this is still possible," said ZKB trading analyst Claude Zehnder, quoted in the Reuters article (linked below).  "They obviously have a problem with risk management. Even when the amount isn't so high, it is once more a loss of confidence that casts UBS in a poor light."

    Read the related stories at: UBS $2 billion rogue trade suspect held in London (Reuters, via yahoo news)
    Alleged UBS rogue trader charged with fraud (msnbc) 
    Inside the luxury lifestyle of UBS' rogue trader (cbs news--includes several video links)  

    Follow up:

    1. What was Kweku Adoboli's reaction to being arrested?

    2. What are the purposes of "internal controls"?

    3. It is too early to know the details of Kweku Adoboli's reactions, but how did Jerome Kerviel hide his unauthorized trades? 

  • No such thing as right and wrong?

    David Brooks, in his New York Times editorial, "If it feels right" (Sept 12, 2011), reviews the issues raised by a study of 18-23 year olds in the recently published Lost in Transition: the Dark Side of Emerging Adulthood by Christian Smith, et. al. 

    The nationwide survey on which the book is based was conducted in 2008--during the unchecked-spending boom just before the big market crash.  Brooks points out that the authors were "stunned that the interviewees were so completely untroubled by rabid consumerism" (prevalent at the time). He also notes that: "When asked to describe a moral dilemma they had faced, two-thirds of the young people either couldn’t answer the question or described problems that are not moral at all, like whether they could afford to rent a certain apartment or whether they had enough quarters to feed the meter." 

    Today's youth will be the business owners and decision makers of tomorrow. The ability to conceptualize what constitutes a moral dilemma is part of complex decision-making, particularly in a global world.  In terms of the basic stages of moral development espoused by Lawrence Kohlberg, adults in a stable, conventional society are capable of functioning at stage four of the following (from Lawrence Kohlberg's Stages of Moral Development, Wikipedia):

    1. Obedience and punishment orientation (How can I avoid punishment?)
    2. Self-interest orientation (What's in it for me?) (Paying for a benefit)
    3. Interpersonal accord and conformity (Social norms) (The good boy/good girl attitude)
    4. Authority and social-order maintaining orientation (Law and order morality)
    5. (Post-Conventional) Social contract orientation
    6. (Post-Conventional) Universal ethical principles (Principled conscience)

    Short-term business operations function on a balanced debit=credit accounting system--typified by the "paying for a benefit" model exemplified by Stage Two in this list.  An entity sells an item that is represented to be at a certain value;  another entity is willing to pay that amount in exchange for the item.  The equal exchange is made.

    But what if the business owner has an opportunity to use inferior materials for a cheaper price, and make more money? Is it OK for a butcher to keep his thumb on the scale and get a little bit more for the meat if the customer says "OK" when he asks if the amount is acceptable?  In the study reported in "Lost in Transition" young people reported that moral decision making was a matter of "personal taste," and "up to the individual" --not governed by social norms or a frame of reference. "Who am I to say?" was a typical response.

    The authors of the study feel that the students' responses are reflective of changes in American culture, and that morality now emerges more from the self, rather than from social norms. If this is true, will this have implications for business dealings?

    Follow up:

    One of the dilemmas used by Kohlberg in his research was called, "Heinz Steals the Drug in Europe." Here is the story (originally from Kohlberg's Essays on Moral Development, Volume 1, and quoted in the Wikipedia article cited above): 

    "A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $ 1,000, which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said, "No, I discovered the drug and I'm going to make money from it." So Heinz got desperate and broke into the man's store to steal the drug for his wife."

    1.  Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?

    2.  Answer the dilemma in the opposite way that you answered it in #1.  Identify what stage or stages of moral development, based on Kohlberg's work would be operative for each of your answers, and state the justification that would exemplify each those stages. 

    3.  How do you feel that business transactions are affected by individual and societal norms regarding morality and ethics? For example, if you weighed your meat at home and found out the butcher had overstated the weight...and it happened more than once, would that affect your buying behavior?  Think of other examples.


  • Global Solar Energy Market Is Growing

    According to a report on the August 31, 2011 PR Newswire, global solar energy sales will reach $75.2 billion by 2016.  This is a growth rate of 13.7%, compounded annually. (Read it at: Global Solar Energy Market).  These new installations will increase solar energy production from 40.7 gigawatts (GW) as of the end of 2010 to 227 gigawatts as of the end of 2016. 

    The country most responsible for this growth is the United States, as part of the North American statistics.  The second-fastest growing market is the Asia-Pacific area. 

    This data was gathered and prepared by a company that specializes in market research for growing and established markets.  The increased interest in sustainability and the concerns about global warming, shrinking oil reserves, and the increasing cost/benefit of solar and renewable energy sources are a source of business opportunities.  Information about these opportunities is yet another area of business growth. This is one example of a marketing company that is focused on "green marketing." 


    1.     Check out this link to Sustainability Marketing.  What does Jacquelyn Ottman say is the key to Green Marketing?

    2.     Read the blurb under the "Editorial Reviews" section for the book Sustainable Marketing: A Global Perspective.  What does this book say the "new consumer-oriented sustainability marketing mix" will replace? [Hint: they are referred to by four letters].  What do those four letters stand for?




  • The Global Economy in the decade since September 11, 2001


    On the tenth anniversary of the September 11, 2001 attacks, Rick Newman addresses the dissonance between what could have been a call to national unification and focus, but what instead has become a decade of declines for the US on several fronts. [ "How America Has Underperformed Since 9/11" (usnews.com) ] 

    • Loss of human life and productivity: in addition to the 3,000 people who lost their lives as a direct result of the 9/11 attacks, 4,442 military casualties have occurred in the Iraq war and 1,584 soldiers have been killed in the war in Afghanistan.  In addition, approximately ten times that number have been injured, and many more civilian lives have been lost in the respective countries.
    • The United State's Gross Domestic Product (GDP) percentage declined from 23% of the world's output to 19% of the world's output, according to International Monetary Fund (IMF) statistics. The nations on the rise are China and India.
    • in 2001, the national debt was $5.8 trillion, which represented 58% of the GDP.  Now it is $15 trillion, or 100% of the Gross Domestic Product.  This high level of debt is not sustainable, and one of the factors in the first downgrade ever by Standard & Poors of the country's bond rating. 
    • Faith in the US government by its citizenry: It was at 33% prior to 9/11, and it rallied to 53% immediately after.  Now it is at 11%, according to polls conducted by Pew Research.

    Shortly after the 9/11 attacks, the IMF held a conference on the Global Economy after 9/11, and reported:  "The most commonly held view is that there will be few consequences for the long-term outlook for the United States amd elsewhere."  Alan Greenspan, Federal Reserve Chairman at the time, concurred.  However, this report came before the US military involvement in Iraq and Afghanistan, and the economic consequences that currently have a "spillover" effect on other world markets. The IMF currently is predicting further downgrades in US growth. 

    Follow up:

    1. What is "spillover" and why is it becoming of importance to the International Monetary Fund?

    2. What is the definition of "GDP"? Why is it important? 


  • "Clawbacks without claws": the SEC barely takes a nibble

    When the Sarbanes-Oxley Act was passed by Congress in response to the financial statement misrepresentations by Enron, WorldCom, AIG and other notorious corporations with fictionalized financial statements, the public expectation was that the Securities and Exchange Commission would prosecute companies and individuals who tried to mislead investors by withholding or lying about relevant financial information. 

    The law held managers responsible as individuals if their company's financial statements were misleading, or if they did not divulge information that would be relevant to investors if disclosed. Managers would have to pay back the bonuses they'd received because of overly-favorable bottom lines. This is what the term "clawback" means: it would not just be the corporate assets that could be used to pay back defrauded investors--lawsuits could force individual managers to pay back bonuses.  Section 304 is the provision in Sarbanes-Oxley that allows for these lawsuits, and courts have upheld that only the SEC is allowed to file suits under this provision--individual investor groups cannot. 


    The New York Times reported in "Clawbacks Without Claws" [Sept 11, 2011, by Gretchen Mortensen], that the SEC's record so far has not been very aggressive. Although the law was passed in 2002, the SEC didn't file its first lawsuit until 2007, and since then has only brought cases against 31 managers at 20 companies--and half those companies have been small and not widely known. Even when the SEC has gone after larger companies, executives have not been forced to repay all of their ill-gotten gains.  For example, the SEC pursued Diebold company (they make ATMs), for overstating net income by $127 million over 5 years.  One executive, Walden W. O'Dell, who received cash of $1.9 million (plus stock and stock options), only paid by $470,000 in cash in addition to 30,000 shares of stock and less than half of the stock options he'd received. 

    Is this the level of enforcement the law intended?  Harry Goldschmid, a former SEC Commission currently teaching at Columbia Law School, was quoted in the article as saying, "The trick is to create deterrents and accountability in the system. You don’t do it if you’re soft on individuals.”

    Follow up:

    1.  Does the punishment fit the crime?  Should managers who misrepresent financial statements (and therefore receive larger bonuses) be considered white-collar criminals?  Should they have to pay back their bonuses?  In your opinion, should they go to jail? 

    2.  Read the article linked above.  Do you think that the outcomes of the cases with New Century Financial and with Beazer Homes were fair?  Why or why not?

  • Work-Life Balance--an issue for low wage earners as well as top management

    Work-life balance: what is the answer?  Many managerial and professional workers have the luxury to ponder this dilemma, but rarely do those at the lower end of the pay-scale have the flexibility and autonomy to make choices that can improve their lives...as well as improve the bottom-line for their employers.

    The article, "Work-Life Balance Benefits Low-Wage Workers, Employers" by David Villano, describes an experiment being conducted by clothing retailers in Chicago.  These employers, as part of a "Scheduling Intervention Study," are granting expanded choices to those at the bottom of the pay-scale.  So far, the ongoing study has shown that family-friendly policies for workers reduce stress, build employee loyalty, and lower turnover.  

    Susan Lambert, an associate professor at the University of Chicago, is one of the researchers studying this topic. “We’ve been talking about work-life balance for a long time, but we haven’t been talking about who has been excluded from these kinds of arrangements,” she says. “The people who really need flexible arrangements often don’t have them.”  These flexible arrangements include maternity leave and other family leave time, monthly scheduling rather than scheduling that occurs a few days or a few hours in advance, and even telecommuting.  The trend in tough economic times has been to do the opposite of granting scheduling autonomy.  One trend has been to use "just-in-time" scheduling--originally developed as a process costing technique to save on inventory costs--as a way to manage the work force at the lower end of the pay scale. This is particularly hard on part-time workers who are juggling more than one job to make ends meet, as well as trying to deal with personal responsibilities.  This under-employed, low-wage work force tends to have high turnover, a large amount of absenteeism, and other issues with job performance.

    Employers may save money in the short run by utilizing cost-cutting policies, but several employers are finding that dealing with high turnover and a lack of mutual trust is not sustainable. Lambert believes that by providing the kind of hard evidence that she has been gathering from her research, she will enable company managers to see that work-life balance issues not only hold value for employees, but are cost-effective for employers.  She sees this research-based solution as a better alternative than federally mandated programs imposing minimum standards on employers' treatment of part-time, low wage-earning employees. 

    Follow up:

    1.  What is the "flexibility stigma" that is mentioned in the article? Why do you think it might exist in certain companies?  What management policies would influence workers' participation in those programs?

    2.  What percentage of "net new job creation" in the past year has been in low-wage jobs, according to the article?  In what industries are these jobs?

    3.  What is your own personal ideal of work and life balance?  What kind of flexibility would you like to have in a job?  Do you have it in your current job, if you are working now?

  • Saab story: bankruptcy protection needed to face unions


    Saab workers, courtesy of scandasia.com 

    Saab makes hip and trendy cars that have cache with today's young people.  But they are in a tough situation. As reported by the Associated Press in a September 8, 2011 article, "Saab denied bankruptcy protection," it looks as though the Swedish courts will deny Saab the protection that it seeks, and bankruptcy seems to be the next step. 

    Workers have not been paid.  Bankruptcy can arise when a company is in violation of laws or if creditors force that bankruptcy.  In this case, the creditors are the employees, who have not been paid their wages on a timely basis--Saab is 14 days in arrears, according to the AP article.  A more complete story of the issues Saab faces was reported in the New York Times article, "Countering Unions, Saab Seeks Creditor Protection" (online as "Saab files for bankruptcy protection as it awaits Chinese cash").

    Saab has been awaiting an infusion of Chinese funds to avert bankruptcy. The company that owns Saab is Swedish Automobile. A company that is considering a bailout investment is Zhejiang Youngman Lotus Automobile. 

    I was surprised to see that Saab was not, in fact, a Swedish company, but rather it was owned by a corporation in the Netherlands   I felt a tad attached to Saab because I learned to drive a stick shift car on a Saab and it was great fun. 

    That is neither here nor there, at this point: Saab is fighting for its life.  It remains to be seen if Chinese investors can bail it out. 

    Follow up:

    1. Forget what you are driving. What is your favorite or fantasy car?  Who owns the company that make that car?  Is it a corporation that is headquartered in the country you live in? Is it profitable? Have you identified who really owns the company?

    2. Google "Spyker," the Netherlands company that owns Saab.  If you were the Chinese company that was approached to invest, would you put your money into this venture? Why or why not?

    3. As an Introduction to Business student, are you interested in companies that are having trouble, or approaching bankruptcy?  Or are you interested in companies that are thriving in spite of the current economic climate?  Do people make money where companies are already thriving, or where they are not? Where do you see your own opportunities?


  • Is a student worker a tax villain?

    student collapsed on tax return

    photo from apa.org:  Young person doing her tax return

    Taxes can always get headlines--who gets taxed, how much they get taxed, corporate vs individual, earned income vs capital gains.  The Los Angeles Times article by Michael Hiltzik, "More Rhetoric to Attack the Poor," published August 31, 2011, delineates the various ways that pundits use language to tell the story that "the undeserving poor" are not paying their fair share.  

    Business communication about taxation--pro and con--is not always straightforward. Particularly when topics are controversial, partially true but misleading labels--as well as facts taken out of context--can be used to inflame a debate.  According to the article mentioned in the first paragraph, one of the current labels used to demonize the poor is "non-taxpayer."  Technically, this label refers to those people who pay no federal income taxes.  The claim being made is that these "non-taxpayers" should not have any voice in the taxation debate, because they have a special advantage: they do not pay federal income taxes under the current system. 

    Mr. Hiltzik notes that articles focusing on poor non-taxpayers ignore the wealthy non-taxpayers. He quotes the non-partisan Tax Policy Center: "in 2009, about 123,000 tax returns reporting cash income over $200,000 also reported owing zero federal income tax — including 6,000 returns showing income over $1million."

    As Mr. Hiltzik notes in passing, many students who work part-time (as well as senior citizens and other low-income earners) fall into the category of "non-taxpayer"--that is, they do not pay federal income taxes. But the term "non-taxpayer" is not entirely accurate.  Let me illustrate this with my own example:

    A student who works part-time as an employee and makes $6,000 per year is subject to payroll taxes.  These include Social Security and Medicare taxes that total 8.8% from the first dollar earned. There is no exemption for those taxes. $6,000 x 8.8% = $528.  If the student spends $2,000 on non-taxable food items, and the spends the remainder [$6,000 - $528 - $2,000 = $3,472] on toiletries, supplies, books, gas, restaurants, entertainment, etc. which are taxed at, for example, 9%, that's $312 in additional taxes.  

    Therefore, that student making $6,000 pays taxes of $840 ($528 + $312).  $840 divided by $6,000 is 14%.  Paying 14% of one's income in taxes does not equate to being a "non-taxpayer."

    Does the student earning $6,000 deserve to be treated as a non-taxpaying villain?  Should this student be forbidden to participate in the debate about tax policy? Some policy analysts demonize all "non-taxpayers" and advocate for reform where everyone pays their fair share (see "Tea Party's principle for tax reform is for all to pay their fair share"). "Fairness" is a commonly shared value, but it means different things to different people.  It might not carefully communicate the realities for everyone concerned.    

    Business communication can be used for many purposes.  It can be used to communicate information clearly--business-to-business or employer to employee. It can also be used to sway public opinion through advertising and public speech and writing.  Business communication can sometimes be used to maximize benefits for oneself or one's group.  Economic policies that surround taxation are often incompletely understood, and imprecise language and name-calling can mislead us into drawing conclusions that don't tell the whole story.


    1.  Reality check: What do you pay in taxes?  Estimate and list the following amounts:

    • your estimated annual income (look at a recent pay stub if you are an employee, and multiply it by the number of checks you receive per year
    • federal income taxes--use your pay stub to estimate this amount in the same way
    • state income taxes (pay stub)
    • Social Security taxes (pay stub)
    • Medicare taxes (pay stub)
    • other local taxes (pay stub)
    • take your "net pay" from your pay stub and calculate your annual net pay.
    • subtract from this amount two items: first--your estimate items spent at the the grocery for food (this is not taxed)
    • second--subtract the amount of money you expect to SAVE this year.
    • that subtotal, which we will call your discretionary income, is what you spend on taxable items like restaurant food, clothing and supplies
    • multiply your discretionary income by your state's sales tax rate.
    • Add up the taxes from your pay stub, plus the sales tax on the money you spend. 

    2.  Calculate how much of your income you pay in taxes:  Take the total amount you spend in taxes, calculated in #1, and divide it by your estimated annual income. 

    3.  Use your favorite search engine to find articles about "tax reform" or "tax policy."  Find two articles on EACH side of the debate about some aspect of tax law--for example: flat tax, estate tax, tax increases or tax cuts, etc. Evaluate the language in each article.  Is there any rhetoric or name calling used to appeal to emotion? What criteria can you use to know what information you can trust?

  • From Grad Student to Businesswoman: a Social Media expert

    Shama Kabani, Social Media expert

    photo by David Johnson: Shama Kabani of the Marketing Zen Group, from the article linked below

    It is the dream of many business students to launch a successful business in their twenties.  Shama Kabani has done that.  She took an academic paper on Twitter (which had only 2,000 followers when she wrote her paper) and turned it into a book and a business, according to an article in the September issue of Entreprenuer magazine. 

    In 2009, she started her business, the Marketing Zen Group, which is a social media marketing firm in Texas.  Her goal is to "cultivate relationships" with a client's "trusted audience."  She has a three-pronged approach:

    • social media with a special twist: "legitimate engagement"
    • a strong and effective website presence
    • search-engine optimization

    Even competitors recognize that Kabani's "legitimate engagement" concept is special.  She trains her clients to develop a two-way communication with their customer base.  Kabani helps her clients understand that they are part of a community that includes their customers. 

    One interesting feature of her business is that several of her employees were hired virtually and work from the Philippines. 

    Shama Kabani is now 26. Her business plan includes becoming a multi-million dollar company by 2014.

    Read the full article at:  "From Grad Student to Social Media Millionaire," by Matt Villano, September 5, 2011
    or in print under the title "Social Media's Zen Master of Marketing,"  Entrepreneur, September 2011

    Follow up:

    1.  How does social media affect your business decisions?  Do you tweet recommendations (pro and con) of products and services that you purchase? Do you act on the recommendations of others?

    2.  Read the book:  The Zen of Social Media Marketing: An Easier Way to Build Credibility, Generate Buzz and Increase Revenue by Shama Kabani, which is widely reviewed and available online.


  • Building a better economy

    bridge or highway construction

    The recovery of the construction trades could be a major factor in the rebuilding of the overall economy.  Juli Niemann, a Marketplace analyst from Smith, Moore and Company, says, "The construction trade is really the only thing that's going to bring this out. The problem with that: it's longer-term. There's no short-term fix for the mess that we're in."  She says that the economic gains we saw earlier this year were tied to manufacturing, and primarily affected export markets.  Investment in the country's infrastructure could have more of an impact. Ms Niemann also says, "Thirty-five thousand jobs are created for about every billion dollars spent on transportation -- that's very effective. You've got a multiplier effect of 2 to 1."  The "transportation" she is talking about is construction repairs to ports, highways and bridges.  Read the transcript or listen to the radio segment at: Marketplace Morning Report Sept 6 2011  

    If construction jobs have the most positive impact, what is the outlook for the economy?  Construction in the private sector does not look good.  According to the AIA Consensus Construction Forecast, nonresidential and commercial construction will continue to decline in 2011 and will not pick up again until sometime in 2012.  The bleak economic outlook has a circular effect, as investing in new construction seems riskier, which in turn depresses the economy further as it does not create the needed construction jobs.

    In addition to the private sector, there is public spending on infrastructure projects. The American Recovery and Reinvestment Act of 2009 [ARRA] was an economic stimulus package based on the debatable principle that "during recessions, the government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration." (Keynesian macroeconomic theory, quoted in the Wikipedia article on ARRA)

    This Act  "needs a booster shot" said two Iowan legislators in an August 2011 roundtable in Cedar Rapids about re-building the middle class.  They called for "more federal investment to stimulate the sluggish economy and put Iowans to work," according to an article by James Q. Lynch in The Gazette

    Has this approach been shown to be effective?  According to a report by the Committee for a Responsible Federal Budget at the 2-year anniversary of ARRA, the investment by the government, primarily in infrastructure projects, has had a positive impact on the jobs market and on the economy:  

    "While controversy exists about the magnitude of and, to a lesser extent, the direction of the impact of ARRA, general consensus among economists is that it significantly helped the economy. CBO's latest estimate in November 2010 said that through the third quarter of 2010, ARRA had lowered the unemployment rate by somewhere between 0.8 percent and 2.0 percent and raised real GDP by between 1.5 percent and 4.2 percent. CBO's employment estimates from ARRA correspond to between 1.4 and 3.7 million more people (or full-time equivalents) employed as a result of ARRA."

    Nevertheless, controversy will always exist when government spending is involved.

    Marketplace is produced by American Public Radio.

    Follow up:

    1. When the Federal government grants money to improve and repair highways in a state, what kinds of jobs are created? Think about planning, construction, ancillary supply businesses, and service businesses that will be impacted.  

    2.  What may be the negative impacts of this type of government spending?

    3.  What do the following acronyms mean?  CBO, GDP, AIA

  • Mobile phone oligopoly could get tighter: AT&T and T-Mobile

    logos of AT&T and T mobile

    logos for AT&T and T Mobile

    The US Justice Department sued to block the purchase of T-Mobile USA by AT&T this Wednesday, as reported by Joelle Tessler and Pete Yost of the Associated Press ["Government Sues to Block AT&T, T-Mobile Merger" via yahoo news, 8-31-11].  The Justice Department claimed that the merger of the #2 wireless company with the #4 wireless company would stifle competition in the industry even further.  The purchase would make AT&T the top wireless company in the United States, superceding Verizon.

    Deutche Telekom,  T-Mobile's parent company, has already decided not to invest further in T-Mobile USA upgrades.  This strengthens AT&T's argument that T-Mobile is already, in fact, out of the business of being a viable competitor.  On the other hand, representatives from the Justice Department asserted that the merger would result in "tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services."  Because of its underdog status, T-Mobile has been a leader with innovations like wifi hotspot access, the first Android phones, Blackberry wireless email, and unlimited service plans.  T-Mobile describes itself as "the No. 1 challenger of the established big guys in the market." T-Mobile has spurred competition among all providers. 

    Others have weighed in on the merger.  In a Forbes article, "DOJ is Wrong to Try to Stop the AT&T / T-Mobile Merger" Geoffrey Manne details "the spectrum argument," which is supported by the FCC's 15th Annual Wireless Competition Report.  FCC Chairman Julius Genachowski asserts: "Demand for spectrum is rapidly outstripping supply. The networks we have today won’t be able to handle consumer and business needs...To avoid this crisis, the National Broadband Plan recommended reallocating 500 megahertz of spectrum for broadband, nearly double the amount that is currently available."

    AT&T's acquisition of T-Mobile would partially alleviate the spectrum problem by creating less overlap and more efficiency.  This efficiency, however, is what would create the anti-trust issues that caused the Justice Department to file the lawsuit in the first place.  The judge who will be hearing the case, Judge Ellen Segal Huvell, is an experienced anti-trust jurist who has decided cases on both sides during her 12 years on the United States District Court. 

    Follow up:

    1. If the deal between AT&T and T-Mobile is blocked, what will T-Mobile receive in payment from AT&T?  What will it cost AT&T to purchase T-Mobile USA if the deal is approved?

    2.  In what other industries is the market structure an oligopoly? Pick an oligopoly that has a product you consume.  What do you notice about prices in this type of market structure?  Does anything ever go "on sale"? 

    3.  How easy or difficult is it to start up a new company in an oligopoly?  What are the barriers?  What is the easiest market structure in which to start a new business?


  • Law 14: "Pose as a friend; work as a spy"

    Robert Greene had several dozen jobs, including working as a screenwriter, before he wrote the book The 48 Laws of Power in 1998. That book earned him several fans, including rappers Kanye West and Jay-Z, basketball player Andrew Bynum, film producer Brian Grazer, and the mercurial CEO of American Apparel, Dov Charney.  Greene's relationship with Charney is the subject of the Los Angeles Times article, "A Kindler, Gentler Warrior" (August 31, 2011).

    After Dov Charney read The 48 Laws in 2001, he contacted Greene. They have been in a mentor/mentee relationship ever since. Charney hired Greene as a paid consultant for several years and then installed him as a board member when American Apparel went public in 2007. The support and advice that Greene has given Charney over the years has helped Charney navigate public relations fiascos, employee issues, and the challenges of running a fast-growing business.  One of Charney's favorite "laws" is Law 28: "Enter action with boldness."

    Some of the other laws that appear in the book are:

    • "Concentrate your forces"
    • "Plan all the way to the end"
    • "Never outshine the master"
    • "Keep others in suspended terror: cultivate an air of unpredictability"
    • "Crush your enemy totally"

    Some of those laws don't appear "kindler and gentler" to me.  What do you think?  We may all get a chance to experience a broader discussion of these laws--if the TV series that HBO has optioned materializes.

    Meanwhile, if you want more information about the book itself, you can check out  The 48 Laws of Power.

    Follow up:

    1.  Please read the LA Times article.  What does Greene say about his own relationship to the "Laws" he delineates in his book?  Based on your own relationship to your beliefs and your actions, do you think that Greene is being straightforward, or is he fooling himself?

    2.  A Reuters article related to American Apparel appeared in the Business section of the LA Times on the same day. Check out that article HERE. It says in the article that Dov Charney could not be reached for comment.  How do you think that Charney might have responded, based on The 48 Laws?