• GM buys back its own preferred stock

    General Motors is spending $3.9 billion to buy back its "preferred stock."

    All corporations issue common stock to its investors. These common stockholders are the principal owners, with voting rights and rights to participate in profits. Preferred stock is a special class of stock that not all corporations issue. There may be special rights assigned to preferred stockholders, but their primary preference is being first in line to receive dividends, or payouts from corporate profits. Usually the dividend for preferred stock is limited to a fixed percentage of the book value of the stock.

    Source: "General Motors Spends $3.9B to Redeem Preferred Stock," the Associated Press, December 31, 2014.

    Follow up:

    • In a period of rising profits, would you rather be a preferred stockholder or a common stockholder?
    • Why did GM decide to "redeem" or "call" its preferred stock?  What are other reasons this might happen?

  • Walgreens get the Boots

    Video commenting on the first phase of the Alliance Boots and Walgreen Deal, begun in 2012.

    Walgreens is finally going as global as it intended to go in December 2012. That was when the first deal with Boots (formally Alliance Boots GmbH) began with a purchase of 45% of the stock. The remaining 55% was purchased in principle in mid-2014, and will be finalized pending shareholder approval. This will make Walgreens the biggest drugstore chain in the world.

    The merger is an example of a corporation growing through acquisition of another company, rather than through its own slower growth. Only the corporate form of business ownership can accomplish this large-dollar acquisition with such ease. A partnership would require the approval of each partner-owner, rather than a majority of stockholders.

    Source: "Walgreens poised to get bigger and go global," by Mitchell Hartmann, Marketplace American Public Media, December 29, 2014.

    Follow up:

    • What is the relationship, if any, of Walgreens to Walmart?
    • What are the advantages of a global company?

  • Whiskey Woes: Entrepreneur fired by Board


    Video from December, 2012--when entrepreneur Chip Tate was the master distiller at Balcones,
    an artisanal distillery

    It seemed like a good idea at the time, early in 2013. Chip Tate, the founder and president of Balcones (an award winning whiskey distiller in Waco, Texas), needed money to help his business grow. Along came an investor: Gregory Allen, who became the majority shareholder for $8.5 million dollars. Tate believed this "partnership" with Allen was "interested in growing a business that we can pass on to our children."

    But something went wrong. One version is that Allen tried to wrest the business away from Tate when costs for the new distillery increased. Another is that Tate threatened violence. Lawsuits ensued...culminating in Tate's both agreeing to let the board of directors buy him out and agreeing not to make whiskey until March, 2016. Tate was also fired.

    The transition from being a sole proprietorship or LLC, where the owner/dreamer/entrepreneur has autonomy (but has to risk his or her own money only), to being a corporation with third parties on the board and "outside investors," is a rocky one for any business. But for a "craft" product like whiskey--personalized even more by Tate, who made his own stills and aging barrels--it is hard to put the "bottom line" monetary goals first, and give up any control over production.

    Moreover, because a corporation is set up to be "one share, one vote," anyone with more than 50% of the shares will ALWAYS get their way. After he made the deal to sell the majority interest to Gregory Allen, Chip Tate was no longer in charge.

    Source: "When Dreams and Money Don't Mix," by Clay Risen, the New York Times, December 28, 2014.

    Follow up:

    • Read the article: What do you think were the major factors in what went wrong?
    • What were the "unforeseen consequences" from Allen's side?
    • What were the "unforeseen consequences" from Tate's side?
    • What other alternatives does a sole proprietor like Tate have when they want to expand their business? What are the risks of those alternatives?

  • Carmen Segarra: Whistle-blower? Heroine? Bad employee?


    photo and caption from the article linked below

    The business environment at large investment banks has never had a reputation for being transparent. Even without the hint of back-room deals and insider information, the algorithms that investors use to predict market trends are completely secret.

    What has recently become apparent is that the New York Fed (the Federal Reserve Bank of New York) also has a culture that is not supportive of oversight, change or transparency.

    After the financial crisis of 2008, a consultant, David Beim, was brought in to see what needed to be done.  He found that "The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did."

    What he put in place was the hiring of expert examiners who were not afraid to speak up. One of these examiners was Carmen Segarra...who was fired seven months later.

    She claimed it was because she would not back down regarding a negative report she wrote about Goldman Sachs. As part of her wrongful termination lawsuit, about 46 hours of audio recordings she had made during her employment have come to light. They do not portray the New York Fed in a positive light. The defendants in the case claim that she did not understand how she was supposed to "manage" the troubling financial situations she found.

    More will be revealed over the coming months.

    Source: "Inside the New York Fed: Secret Recordings and a Culture Clash," by Jake Bernstein, ProPublica, September 26, 2014

    Follow up:

    • What is a whistle-blower? How should employees be protected when they bring to light the unethical behavior of others? 
    • Who are the "stakeholders" of the New York Fed? (That is, who does the New York Fed owe its allegiance to? What is the largest group of stakeholders?)
    • What, in the article, is the term "absorbing and diffusing" a euphemism for? What expectation of an employee-examiner does this term imply?
  • Business environment 2014: the 10 most important charts

    The Economic Policy Institute has published its group of ten important graphs that tell the story of the business climate in 2014, from the standpoint of an employee.  These graphics include:

    • the middle class inequality tax over the last decade
    • a comparison of productivity and pay over the last 35 years
    • annual pay increase rates
    • hourly pay increase rates
    • CEO vs worker pay rates
    • minimum wage increases as a function of productivity
    • college graduate employment income over time
    • the wage gap and economic recovery
    • slow economic recovery and college enrollment
    • the erosion of health insurance coverage by employers

    Since corporate profits represent the reward for the risk of investing in underlying costs (production equipment, materials, and labor) these profits increase when investor "labor" rates exceed the rates paid to production and employee labor. Some of these comparisons are particularly interesting to recent college graduates.

    The Economic Policy Institute recommends that the Federal Reserve adopt a “'do no harm' principle: the Federal Reserve should not try to slow recovery in the name of fighting inflationary pressures until wage growth is much, much stronger."

    Source: "The Top Ten Charts of 2014" by the Economic Policy Institute, December 18, 2014

    Follow up:

      • Why is the relationship of pay to productivity significant to the business environment from the perspective of small business?
      • ...larger businesses?
      • ...and employees?
      • What other charts would you include to tell the full story about the business environment in 2014?
      • Do you think that the federal government should support the economic recovery rather than fighting inflation, or do you think they are not mutually exclusive?
  • 10 Worst Accounting Ethics Scandals of all time

    [View:
    Source: Accounting-Degree.org:550:0]

    Many business students and investors believe that CPA audits certify that there are no mistakes in the financial reports of companies. But a "perfect" accounting opinion only attests to the financial statements being "fairly stated when taken as a whole." A lot can be hidden in the details--and no one item on the statements can be taken as "fact."

    Moreover, as some companies have assets on their books that are hard to evaluate, "fair value" accounting for those assets may leave the worth of the company overstated (as it did with investing and lending institutions in mortgage crisis).

    In addition, client companies pay the auditing firms' bills, so they often exert pressure on auditors to state the financials in the most positive way. If the client represents a large percentage of a firm's billings, this can present a very profound conflict of interest.

    Source: from website: http://www.accounting-degree.org/scandals/

    Follow up:

    • Which of these scandals present the most egregious affront to the public trust?  Why?
    • What do you think the penalties should be for "white collar" crime? Some observers have noted that the threat of serious punishment has more of an effect on the actions of financial professionals than it does for "street criminals," even though political rhetoric about the deterrent effect of serious punishment is mostly directed at street crime. Cite factors mentioned in the link in your response.

  • The "Golden Era" of white collar crime


    Sam Antar and Eddie Antar of the "Crazy Eddie" scandals from the 1980s.

    "We are in the golden era of white-collar crime. My biggest regret is I should've been a criminal today rather than 20 years ago," said Sam Antar in an interview with CNNMoney during the November 2014 Safe investing seminar in New Jersey.

    Sam Antar was the CFO of Crazy Eddie during the 1980's. j

    (

    )

    Regarding that involvement, he said, "Crazy Eddie was from Day One planned to be a criminal enterprise. We committed our crimes simply because we could," said Antar. He served only 6 months of house arrest because he gave the Feds the information they wanted; Eddie served more than six years in prison.

    Today, Anwar consults and does speaking engagements regarding white-collar crime.

    Source: "Crazy Eddie CFO: 'We are in the golden era of white-collar crime'" by Matt Egan, Inside Wall Street, November 14, 2014.

    Follow up:

    • What ethical principles did the CFO and CEO of Crazy Eddie break in the 1980's (see link)?
    • How much do you think Sam Anwar has learned about ethical behavior, based on his comment that he wishes he were a criminal NOW instead of THEN?
    • Read about the levels of moral development espoused by Lawrence Kohlberg. How do these apply to the Anwars' behavior?

  • The Sony hack vis-a-vis the business environment

    There is a new movie out call "The Interview." Before anyone had a chance to see it, it was stolen, along with other intellectual property owned by Sony Corporation. This event and its unintended consequences might be of considerable concern to observers of the changes in the business environment that are evolving in the internet age.



          

    .

    One problem is that this is not the usual theft--it is a theft that embodies international crime factors, and it is special because it was created JUST FOR SONY.

    What do the hackers want? It is not totally clear. The old rules of the business environment were:

    1. Find or develop a product so that you can make money for your employees and shareholders.
    2. Support systems that are sustainable (that is, support a stable economic and political environment that is good for business.

    The current situation at Sony does not seem to be "business related" in the classic sense. Disruption may be the only motivation. Nevertheless, it does point up that supporting a stable business environment meant physical safety and property protection that were apart of a system of laws and decent police forces. Now the dangers can occur in a cyber environment, that may be both more vulnerable...and potentially more able to undermine business activities.

    The Marketplace Tech host, Ben Johnson, said in the linked interview that it may have been "just ONE 'sucker' on the network who let in the hackers. But now intellectual property is unprotected, email that was written with the erroneous assumption of privacy is going viral, and work product on hard drives is disappearing.

    Source: "The Sony hack, dissected," by Kai Ryssdahl, American Public Media, December 16, 2014.

    Follow up
    Put yourself in the shoes of a business executive or board member of Sony or any entertainment company. 

    • What kind of protections--in terms of laws and security--would you like to put in place to continue to do business?
    • Who, if anyone, will make money from the hacks into inflammatory emails?  Who has been and who will be harmed, and will they have any recourse?
    • What about the film that is not going to be formally released? Has interest in seeing the film increased or decreased because of the decision to not release it?
    • What short term gains were achieved, and by what stakeholders? What long term gains may have been sacrificed?
    • What does this mean in terms of the "risk and reward" that are an essential part of the business environment?
  • When to Pop the Pay Question about a Raise

    When can you ask for a raise, and when is it not advisable? Let's consider the business environment.

    This is a seriously important question...especially to those who committed to a position in anticipation of a raise, and who cannot really afford to work at the [starting] salary. This is even more compelling when there are compelling challenges to the position, in terms of "tests" one must complete to be able to be considered as a continuing employee...

    One cogent issue is: should the ballpark salary be transparent in a position...or should it be contingent on results?

    Here is a real-life situation, where a potential job candidate has been asked to do a homework assignment that amounts to a seven-day super-challenging work task.

    The article points up two business dilemmas:

    • when to start the salary discussion (is it appropriate before the job offer, given current economic factors)
    • and whether a (presumably uncompensated) week-long project that may or may not lead to a new job is worth your time.

    I would say that a complicating factor is--what is happening in the job market for this type of position? Is this a staged competition, or a subjective evaluation tool?  Are all positions at this level experiencing this kind of interview innovation?  Is the business environment highly competitive?

    Because salary is a "major factor" in an employment decision, it seems both unfair and un-business-like to withhold that information. But it may be an artifact of the old-school practice of delaying the salary discussion until the candidate is the finalist. This doesn't really work if the project is unpaid labor, or a cutting-edge challenge. 

    It would be ironic if part of the evaluation was to ascertain if the candidate would speak up about the reality of her time being worth something. Does avoiding a conversation about compensation seem wise?  Will the candidate always have to put compensation on the back burner?

    Hiring decisions are a two-way street--even in a tight job market, the candidate has to feel as though the company is a good fit as well.

    Source: "When to Pop the Pay Question," by Rob Walker, New York Times, December 13, 2014.

    Follow up:

    • In this situation, what would you do? Is your answer based more on business objectives?  How do the concepts of scarcity and abundance factor in?
    • Have you ever asked for a raise? Describe the situation, the motives, and the results. 
    • In what business environment is asking for a raise easy? When is it difficult?
  • Personal Finance disappointments

    Analogies are imperfect. Sometimes the lessons of early youth do not reverberate to the financial decisions of adulthood.  Each of us may have taken tentative steps as toddlers that the escalated into running invincibility. But our first ventures into finance--tentative steps into the financial world--do not often successfully materialize into running exuberance and wealth.



    Do you remember Nasim Taleb from previous blogs? He wrote The Black Swan, and is a student of the vagaries of the financial markets, at a very professional and insightful level.

    In a recent interview, he discussed the "illusion of certainty" as a factor in investor's (probably mistaken) decisions to invest in certain stocks, based on "building a picture of the world that conforms to what we want to happen, not what will happen."

    As Taleb observes, "It’s both entertaining and frustrating to hear different people use the exact same information to justify two opposite actions." This "noise" of opposite opinions confirms that "Change and uncertainty are consistent in their inconsistency."

    The plus side of the "acceptance of uncertainty" is that it keeps individuals figuring out what path they will take in order to move to their goals.

    Which is to say: GOOD LUCK in your investing life!

    Source: "The Consistency of Inconsistency, and How to Adapt your Financial Goals," by Carl Richards, New York Times, December 15, 2014.