The Trans Pacific Partnership (TPP) is a global deal that has been in negotiation in some form for several years.  It is being set up so that other countries can join later, but at this point, it involves 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Several other countries oppose the treaty, and factions within the currently participating countries are also staging oppositions. In the U.S., President Obama is pushing for this legislation, and hopes to "fast-track" it.

Some commentators have called the TPP "NAFTA on steroids" because it will have a broad implications for workers world-wide. The entities pushing hardest for the global agreement are multi-national corporations. Maybe because of this, Obama has kept the details of these negotiations secret, while giving 600 corporate lobbyists "special advisor status" so that they can read and evaluate the documents-in-process. The source of information for the linked videos have primarily been negotiators from other countries and documents from Wikileaks. Mainly, the treaty will make global commerce easier by eliminating tariffs, border inspections and government regulations.

Sources: The Murphy Institute lecture on the Trans Pacific Partnership: A Back-Room Deal for the 1% October 25, 2013 (an hour-long lecture).
"Wikileaks Exposes the TPP as a Capitulation to Corporate Interests," by Kevin Zeese, The Real News, November 15, 2013 (news interview).

For Discussion:

• What are the arguments in favor of the Trans Pacific Partnership (TPP)?  Who benefits?
• What are the arguments against the TPP? Who loses?
• What is "fast-tracking"?  What are the pros and cons?  Who wins and loses?
• What is NAFTA and what effects has it has on American labor and prices?

from article below, via Brandon Weber's blog post

Many essayists have observed that Americans differ from those in other countries because many believe that no matter what their economic status, they are just one lucky chance from being super-rich.  The rags-to-riches, Horatio Alger story. The American Dream. Economic opportunity is at the heart of American culture. But Robert Reich points out that it is now less likely than ever that the dream of upward mobility will be achieved.

"America is now more unequal that it’s been for eighty or more years, with the most unequal distribution of income and wealth of all developed nations. Equal opportunity has become a pipe dream."

Public policy, for most of the 20th century, and particularly in the two decades after the end of World War II, was focused on providing more equal opportunity to all citizens, through education and other programs that invested in the future. We have spent the last thirty years doing the opposite. According to Reich, this is a values shift that hinges on the question of what we think we owe each other as members of one society, one country.

Some would say that individual choices or individual charities should address this issue. Others, including Reich, think that public policies (laws, tax rates and governmental regulations) play a major role in who wins and who loses:

"Ninety-five percent of economic gains since 2009 have gone to the 1 percent. We have a moral obligation to fix this."

What do you think?

Source: "Robert Reich: Trickle-down economics has made America an 'indecent society'," by Robert Reich, Salon, December 20, 2013.

For Discussion:

• Do we have a moral obligation to fix this? Why or why not?
• What will happen jobs and the middle class in your working lifetime if the trend continues?

The business news lately has been peppered with reports of American corporations merging with companies across the globe to effect what has been euphemistically labeled a "tax inversion."  This is a crafty way of saying "a scheme to avoid paying U.S. income taxes."

Who is really harmed by this?  Notwithstanding that all individual taxpayers have to pick up the slack regarding the tax burden--or forgo services--it is the small domestic-only businesses who have to bear the business burden of this scheming.  Hundreds of thousands of small businesses are stuck paying taxes in the U.S...while competing with the multi-nationals who can opt out of U.S. taxation through "tax inversion." The big companies are getting a deep discount--even though they are taking advantage of American infrastructure and relative stability in which to conduct their business. Small companies have to pay.

A new report came out last week, authored by Michael Udell: "Single Sales Factor Apportionment of Global Profits to Broaden the Tax Base". This report suggested that taxation globally could be based on the proportion of actual sales by country, not on the managerially manipulated "reported profits."  It is a pretty simple idea. Pfizer, Inc. was given as an example of how the tax inversion currently works--but would not be worthwhile under a "single sales factor" system:

"For example, currently Pfizer sells a whole lot of its medicines inside the US, but claims to lose money here, resulting in little-or-no inside-US tax to pay. A Bloomberg story on Pfizer’s tax schemes reports, 'earnings before taxes outside the US were $15 billion in 2011 while losses within the country were $2.2 billion. … These operating results appear to be inconsistent with [Pfizer's] domestic and international revenues, which in 2011 were $26.9 billion and $40.5 billion, respectively.' So Pfizer piles up the cash – as much as $73 billion of taxable profits were held outside the US in 2012."

In addition to the tax revenues lost to the U.S., Pfizer's tax scheme definitely had some collateral damage which was not reported in the article. In order to operate internationally, its research divisions in the U.S. had to be closed and moved overseas. A major operation in Ann Arbor, where I went to school, was shut down about 6 years ago, leading to the loss of over 1,000 jobs, some of which were held by those who graduated when I did. They were forced into early retirement.

I wonder how many Americans will be affected by these peripheral actions resulting from other companies' overseas tax inversions. Removing the taxation financial incentive might be an excellent way to solve multiple problems.

Source: " A Simplified Way to Tax Multinational Corporations," by Dave Johnson, Moyer's & Company, July 15, 2014.

For Discussion:

• Do an internet search of "Single Sales Factor taxation" and see how this concept originated with legislation for tax fairness among the states within the U.S. Has it been effective?
• What are the arguments for and against single sales factor taxation from the standpoint of a corporation considering a tax inversion merger?  How about from a public policy standpoint?

YouTube video posted by The Young Turks: FedEx illegal drug deliveries

The Justice Department recently indicted FedEx (Federal Express) for knowingly delivering pharmaceuticals to people who did not have legitimate prescriptions. Online "doctor appointments" were the source of the drug purchases. FedEx had been warned by federal prosecutors and other drug enforcement personnel not to participate in business transactions with these pharmacies, but they continued to do business with them. FedEx made over $820 million on these business transactions. The drugs involved were drugs like Ambien, Xanax and Valium.

FedEx plans to plead "not guilty."

Does a transportation business have the responsibility for illegal acts committed by its customers, if the customers represent to the transportation business that their activities are legal?
Here is a definition of a "hold harmless clause" from Investopedia:

"A statement in a legal contract stating that an individual or organization is not liable for any injuries or damages caused to the individual signing the contract. An individual may be asked to sign a hold harmless agreement when undertaking an activity that involves risk for which the enabling entity does not want to be legally or financially responsible."

If FedEx signed such an agreement, should they be held responsible for the possibly criminal activity of their customers?

Sources: "FedEx delivers drugs illegally?" by Cenk Uygur and Ana Kasparian, The Young Turks, July 21, 2014.

"FedEx Charged With Assisting Illegal Pharmacies," by the Associated Press, via Newsone.com, July 18, 2014.

For Discussion:

• Who do you think will prevail in this case, the Justice Department or FedEx? State your reasons. What do you think of the possible penalties addressed in the video?
• What if you were driving your friend to and from the home of a drug dealer--would you be at risk for criminal prosecution? Jail time? A fine? How does this compare to the FedEx case?
• Would the situation be any different if Uber or a taxi service were involved? Does it make a difference if the transportation is being provided by a business rather than an individual not making a profit? State your reasoning.

Lumo Lift--a not-yet-manufactured product reviewed by TechCrunch

Some classic entrepreneurial business strategies seem to be emerging as part of social media marketing. Here is one that came to my attention on a recent Facebook break:

Lumo Lift.

It showed up as one of those new-ish Facebook ads, embedded in my news feed. I imagine it was not targeted to me specifically--I imagine that everyone slouching over their laptop or bending over their smartphone could be concerned about their posture. Anyway, it caught my attention.

Rather than click on the ad, I did a search separately for the product, and found the review linked below. As it turns out, the Lumo Lift represents a new product line for Lumo BodyTech. Between the review and the TechCrunch video, some serious advantages to this product--beyond those strictly related to posture--were delineated. Go Figure.

The social media marketing, the crowdfunded financing model, and the classic "creating a need" (that your product fulfills) seems to be a combination that reduces risk for entrepreneurs. Marketing costs are lower than running national TV campaigns (and also hold the possibility of "going viral").  Manufacturing costs--which otherwise would be funded by bank loans or IPOs, are raised without risk to the company or to consumers by using the crowdfunding model.  In addition, the crowdfunding tool and the app related to the product provides demographic and effectiveness feedback to the company that is research for improvements and new products.

Lumo BodyTech is a privately held corporation.

Sources: "Does this posture-sensing device really keep you sitting up straight? " by Ariel Schwartz at Co.Exist, February 4, 2014.

For Discussion:

• Research other crowdfunded manufactured products. List them and the products they (hope to) produce.
• How does crowdfunding reduce risk? How important is this type of risk-reduction important to an entrepreneur, and how exactly does it work?
• According to TechCrunch, what is the user reaction to the Lumo Lift product's effectiveness, and how are the results tracked?  Any issues with that?

"Don't judge a book by its cover" is an adage that means outward appearances are often not the best indication of what is inside. This is particularly true of fruits and vegetables--where their shape does not indicate how nutritious it might be. The European food-store chain Intermarché has a new marketing campaign to drive this point home--for the following reasons:

• "ugly" food often goes to waste, creating sustainability issues.
• an education program can teach consumers that looks are not relevant for food items.
• misshapen fruits and vegetables are marketed at a bargain price nevertheless.
• Intermarché gets good press and increased sales.

Source: " Intermarché Inglorious Fruits and Vegetables, " on YouTube (June 12, 2014) via Facebook post "Grocery store finds a way to sell misshapen produce instead of throwing it away" July 19, 2014.

For Discussion:

• What is the short term effect on production and sales for Intermarché as a result of its "inglorious fruits and vegetables" campaign?
• How was this marketing campaign rolled out and publicized?  What was the most effective?
• In your opinion, would this campaign work in the United States? Which food retailer(s) would be most likely to use it and why?

One of the more onerous tasks involved in real estate transactions is all of the paperwork. Dotloop to the rescue. The training video above is actually a class for real estate agents...who might not feel "rescued" by having to learn a whole new computer system in order to do their work. 

The promo below, however, is geared to the experience of real estate office customers--for whom real estate agents compete. These customers--like you and I--are looking for a home or an investment property. We are not really the Dotloop customer base, but as the customers of the real estate agents, our needs are a major factor in the services provided by the real estate professionals.

As the promo video implies, and as the NYT article addresses: consumer expectations regarding paperwork and ease of transactions has changed dramatically. Dealing with fax machines and scanners to handle signed documents remotely--or scheduling face-to-face transactions with buyers, sellers and a notary public--are no longer viewed as "user-friendly." Dotloop has stepped in to address this issue, by developing a product for real estate agents to manage complex, multi-step real estate transactions and to simplify the process for real estate buyers.

The challenge for Dotloop has been that their paying customers are the real estate offices.  And the agents in those offices have a historical commitment to paperwork management. Of course there is resistance to change there--especially when costs and a feeling of loss of control are involved. Dotloop's promo video focuses attention on consumer needs and expectations (the real estate office's customers). Dotloop is "creating a need" in this promo video--the need to honor the real estate buyers' aversion to paperwork. This is a need Dotloop can satisfy.

It is also a classic marketing ploy (e.g. read about the history of toothpaste or deodorant marketing).

Source: "Selling Real Estate, without all of the paper, " by Eileen Zimmerman, New York Times, July 14, 2014.

For Discussion:

• List the issues that real estate offices might have with adopting a paperless system such as the one provided by Dotloop.
• If you were selling the Dotloop Dashboard product, what strategies would you use?

What is a stock split? Why are they so popular? As this video explains, a stock split is theoretically just like making change for a dollar:

BEFORE: you have one piece of money, a dollar bill, and it is worth 100 cents.
AFTER a "4:1 split" of the dollar into quarters: you have four pieces of money, each of which is worth 25 cents, and 4 times 25 cents = 100 cents.

So a stock split, theoretically, doesn't change the value of anything. But the marketplace itself can have an effect.

At the beginning of June, Apple Inc.'s stock was trading at about $600 per share. Then it split 7:1.  As the Whiteboard video points out, a person who owned 100 shares of Apple on June 5th (worth $60,000), owns 700 shares today--but each share is now only worth about $90 per share. So 700 shares times $90 per share equals $63,000.  The market delivered an extra $3000 in value--partly as a result of the split on June 9th.

One of the reasons any company splits its stock is so that more people can afford to buy the stock. Stock is most economically bought in 100 share increments, and more people can afford to invest $9,000 ($90 x 100 shares) than can afford a $60,000 investment in 100 shares costing $600 apiece. More demand often triggers an increase in price.

But to an unsophisticated observer, the drop in price per share might be misunderstood as a sharp decline in total value. "Stock dividends" can also cause a decrease in price per share (but not total value), which a knowledgeable investor (or business student) can explain with simple arithmetic.

Source: "Explaining the stock Split: Some Financial Gymnastics," by Paddy Hirsch, Marketplace Whiteboard, June 24, 2014.

For Discussion:

• Why would a company ever want to do a REVERSE stock split, if ever?
• How is a stock split different from a "stock dividend" for the corporation and for the investor? [Note: A "stock dividend" is NOT a "cash dividend"...a stock dividend is the distribution of additional stock shares.] How is a stock dividend similar to a stock split for each of those stakeholders?

One of the markers of emotional maturity--as well as an important soft skill for most businesspeople--is the ability to respond to feedback with integrity. But "feedback" means "criticism" to many people, and some individuals have a low threshold for hearing feedback. In addition, few people know how to respond to feedback that may seem misguided or wrong, let alone the feedback that seems so true it cuts to the core, leaving the recipient feeling exposed or ashamed.

Becoming a "safe" person to both deliver feedback and to receive feedback can enhance both business productivity and business relationships. Douglas Stone and Sheila Heen--in their book, "Thanks for the Feedback: The Science and Art of Receiving Feedback Well"--have used the social networking concept of "push" vs. "pull" communications as a way to see feedback from a constructive perspective. The recipient of feedback, as it turns out, can find a way to maintain a position of strength and efficacy by using some of the communication strategies they suggest.

Sources: "12 Business Books You Will Need To Read in 2014," by Adam Grant, Quartz, December 17, 2013.

"Thanks for the Feedback: The Science and Art of Receiving Feedback Well," by Douglas Stone and Sheila Heen, Viking Adult, March 4, 2014.

45 minute YouTube video and one hour+ book-signing YouTube video

For Discussion:

• Describe a situation from your work or school life where you were given feedback about something you could do better and describe your short term and longer term response.
• Describe a similar situation from your personal life.
• Does this book address business communication techniques for managers? Explain your answer.

Income inequality may be a major factor for business majors and everyone else aspiring to a middle-class or upper-middle class lifestyle in the coming years. Nick Hanauer is not an ivory-tower intellectual or a liberal politician: he is a billionaire entrepreneur. He summarizes his views in this way:

Nick Hanauer believes it is in the best interests of current and future entrepreneurs and top-earning corporate leaders to address the issues of income inequality...for the simple reason that business growth is enhanced when there are large and increasing numbers of customers and potential customers with discretionary disposable income. A person living in poverty is not a potential customer.

Source: "Billionare Warns About Income Inequality: This Isn't Capitalism, It's Feudalism," interview of Nick Hanauer posted to YouTube by Andrew Carusone, and originally aired on Bloomberg News, (also discussed in a TEDtalk), July 7, 2014.

For Discussion:

• What is feudalism? Why might it be a problem as an economic model for America?
• How does Hanauer's reference to the entrepreneur in the Congo apply to the point he is trying to make? What are the fallacies (if any) in his argument?
• What does Hanauer propose as a solution? What have others proposed?

photo from linked article

While politicians are grandstanding about whether or not to raise the minimum wage, some savvy fast-food entrepreneurs and managers have figured out that it benefits the business to pay workers more. Here are the starting wages in several places:

• Boloco (New England chain) $9.00
• Shake Shack (the very trendy burger and shake shop, primarily East Coast): $9.50
• In-N-Out (California and western states): $10.50
• Moo-Cluck-Moo (a 2-store Michigan outfit): $15.00
• and--outside of the fast food arena--Seattle (the city) has recently set its minimum wage at $15.00.

Why would employers pay more than the federal minimum wage of $7.25 per hour? Some of the reasons cited include:

• The employers wanted to do the right thing.
• The manager/owners wanted to protect their company in the long run.
• "We believe that if we take care of the team, they will take care of our customers,” said Randy Garutti, the chief executive of Shake Shack.
• The ability to "pick from among many talented job applicants" according to Scott Newman, of Boloco.

Boloco also helps employees with commuting costs, ESL classes and a 4% contribution match into a 401k retirement plan.

This approach shows that a short-sighted focus on immediate profits is not always the approach for a small business. A "total quality management" approach can also be applied to a service business, with goals set for the medium- and long-term as well.

Source:  "Paying employees to stay, not to go," by Steven Greenhouse and Stephanie Strom, New York Times, July 5, 2014.

For Discussion:

• Would knowing that a higher minimum wage was being paid have any effect on your perception of a restaurant business?  Would it have any effect on your patronage? Why or why not?
• What are the downsides of a higher wage for employees? (research the reaction of Starbucks' Howard Schultz to the Seattle minimum wage increase)

Robert Reich spoke about his opinions regarding the myths of globalization at a speech at International House (UC Berkeley) a few years ago. He pointed out that misunderstandings about globalization arose from failures to frame the questions or problems intelligently:

This week, Reich expanded his thoughts on globalization by pointing out a possible unintended consequence of a certain globalization action which he sees as positive. The event behind his new position was Walgreen's announcement to move its operations to Switzerland--in order to avoid U.S. taxes. From Reich's essay:

"Walgreen, the largest drugstore chain in the United States with more than 8,700 drugstores spread across the nation, is on the verge of moving its corporate headquarters to Switzerland as part of a merger with Alliance Boots, the European drugstore chain...Even if it becomes a Swiss corporation, Walgreen will remain your Main Street druggist. It just won’t pay nearly as much in U.S. taxes. Which means the rest of us will have to make up the difference. Walgreen’s morph into a Swiss corporation will cost you and me and every other American taxpayer about $4 billion over five years, according to an analysis by Americans for Tax Fairness."

Why would Reich see anything about this as positive? He is usually against "the 99%" paying more in taxes. In this particular instance, he seems to be focusing on a larger issue: Walgreen, as an American corporation, has spent over $991,000 in political contributions since 2010, and also lobbied for and received special provisions under the Dodd-Frank Act.  As a foreign corporation, Walgreen would not be seen as an American "corporate person," and would not be eligible to contribute to corporate campaigns or lobby for special treatment. 

Is this enough to counterbalance the loss of tax revenue?

Sources: "Robert Reich: Walgreens shouldn’t have a say about how the U.S. government does anything," by Robert Reich, as reported in Salon, July 8, 2014.

"At Walgreen, renouncing corporate citizenship," by Andrew Ross Sorkin, New York Times Dealbook, June 30, 2014.

For Discussion:

• What are the pros and cons of Walgreen's move from the point of view of Walgreen, considering Reich's possible consequence? What if a majority of American corporations did this?
• What are the pros and cons of Walgreen's move to Switzerland for the USA as a whole? How about for the small business person?
• What Supreme Court case opened the door for political contributions by American corporate persons, and what has been the effect of this?

Every fad has highs and lows in its sales life. The cupcake craze has had a long ride...and gourmet, high-end cupcakes have fared well. Crumbs' IPO was at the crest of the boom. Comments associated with some of the online news stories of this shutdown show that many fans of this craze are in mourning with the closure of this particular cupcake chain.

The closures came suddenly. Online stores as well as retail outlets were shut down at the end of the day on Monday, July 7th--after Nasdaq stopped trading of Crumbs' shares on the heels of Crumbs' bankruptcy filing. Online commentators are blaming Obamacare and decrying the loss of jobs associated with this multi-state chain of retail outlets. Nevertheless, falling sales (part of the marketing cycle of a trendy product) and poor cash flow (the harbinger of most bankruptcies) were probably the reasons behind the closures.

They were beautiful (and, I hear, tasty) while they lasted:

photo from the source linked below

Source: " Cupcakes Are Over: Crumbs Bake Shop Just Closed All Its Stores, " by Tiffany Yannetta, Racked NY: shopping and style intelligence, July 8, 2014.

For Discussion:

• What is the life cycle of a new product? Describe the classic curve.
• What new food products are trending now? What is the source of your information?
• What part does social media play in food trends? What particular food trends are associated with social media (hint: see this former blog piece)

cartoon from alohastartup.com

"Piercing the corporate veil" may end up being an unintended consequence of the recent U.S. Supreme Court (SCOTUS) decision regarding Hobby Lobby. Here's how the case evolved, and how it might have opened the opportunity for some real damage to the corporate-entity concept:

• Individuals set up a corporation, Hobby Lobby, which is a separate corporate entity.
• Hobby Lobby, the corporation, agreed to pay for health insurance coverage as part of an employee benefits package.
• The individual human beings who own Hobby Lobby (a closely-held corporation) wanted certain health-care benefits limited due to the individual shareholders' religious beliefs.
• They took their case to SCOTUS, and won with this decision: individuals can limit third-party insurance benefits offered by the corporation they own, if those benefits violate the religious beliefs of the owners.
• HOWEVER--historically, the entity concept was applied to ensure that corporate actions and corporate business were separated from the actions of the individual owners. Individual owners could benefit from excess profits from the corporation, but could not be held liable for corporate losses, as the corporate actions were separate.
• In this case, the individual owners voluntarily stepped into the middle of corporate business, by exercising individual rights (religious freedom) that influence what has heretofore been an entirely corporate activity: administration of employee compensation in the form of a health insurance benefit.

What will this mean for the future?  Several lawyers filed a friends-of-the-court brief as a part of this case. In it, they stated: "Allowing a corporation, through either shareholder vote or board resolution, to take on and assert the religious beliefs of its shareholders in order to avoid having to comply with a generally-applicable law with a secular purpose is fundamentally at odds with the entire concept of incorporation." Others believe this opens the door for creditors and government agencies to pierce the veil in the other direction, and will result in a flood of cases.

Source: "The Other Big Problem With The Hobby Lobby Decision," by Alex Park, Mother Jones, July 3, 2014.

For Discussion:

• What case(s), historically, established the principle that losses cannot be recouped by third parties from the owners of a corporation, if the obligations were incurred as part of the corporate business?
• What situations can you think of that could exploit this opening? Consider both who might cite claims against the shareholder-owners, and additional ways that the shareholder-owners might apply this new interpretation of the entity concept
• What is a "friend-of-the-court" brief? What is the Latin name? What corporate entities filed such briefs in the Hobby Lobby case? Who, significantly did not?
  

France's largest bank, BNP Paribas, has pled guilty to various illegal financial actions and agreed to pay an $8.9 billion fine to the U.S. Justice Department. BNP Paribas systematically, and with the consent of executives at the highest level, conducted business transactions for Sudan, Cuba, Iran and other countries in violation of U.S sanctions against those countries. One of the first tip-offs to these crimes arose from the assertion by the father of a woman who had been killed in a terrorist bombing in Gaza. He claimed that the act had been funded through a NYC charity that was a "front for the Iranian government." An initial investigation of this charity let to Lloyd's Bank and Credit Suisse and was followed by a whistle-blower's assertion in 2009 that eventually implicated BNP Paribas.

The French stock market reaction to the announcement of the guilty plea and the settlement was, ironically, positive: BNP Paribas' stock went up.

Sources: "A Grieving Father Pulls a Thread That Unravels BNP’s Illegal Deals " By JESSICA SILVER-GREENBERG and BEN PROTESS, New York Times, June 30, 2014.

"BNP Paribas Admits Guilt and Agrees to Pay $8.9 Billion Fine to U.S." By BEN PROTESS and JESSICA SILVER-GREENBERG, New York Times, June 30, 2014.

"BNP Paribas Expresses Confidence in Its Funding After Guilty Plea," by Liz Alderman, New York Times, July 1, 2014.

For Discussion:

• What was the train of events that led to this crime? Why was this considered an acceptable business practice at the time by the bank?
• What would the consequences have been to an individual convicted of the crimes to which BNP Paribas admitted? Discuss those consequences with respect to the effect the fine will have on BNP.
• Why do you think the stock of BNP Paribas rose the day after the announcement of this settlement? [Check out the BNP Paribas press release linked at the beginning of this post.] Cite documentation supporting your opinion.