• Pumpkin spice frenzy: french fries in Japan

     image from McDonalds, via Marketplace

    It is pumpkin spice frenzy time. The latest entry is from Japan--french fries at McDonalds. They are drizzled with McChoco sauce and pumpkin flavoring. Yum??  Autumn in the northern hemisphere means a marketing opportunity for all things pumpkin-spice:

    Of course, there is also a backlash.  And a counter-backlash. Where do you stand?

    Source: "Pumpkin spice french fries are here to give you festive, autumnal, heartburn," by Kai Ryssdal, Marketplace: American Public Media, September 23, 2016.

    Follow up

    • Have pumpkin spice french fries come to any restaurant in your neighborhood? Have you tried them? 
    • Come up with at least three pumpkin spice products that you have not yet seen, and develop a marketing plan for them. First, check out the "Pumpkin Spice Latte" link in bullet above to get an insight into Starbuck's pumpkin spice marketing strategy.

  • Low pay persists for growing number of caretakers

     image from the Bronx Chronicle

    Average pay for home-care aides is $10.11 per hour--not even close to the $15 depicted on the image above. Worse, the average pay has DECREASED in the last decade: in 2005, the average pay was $10.21. These statistics were complied by P.H.I., a national organization that gathers information about the home health care workforce. On the other hand, as the baby-boomer generation ages (and life expectancy for these individuals increases), the need for in-home (or nursing home) care is going up--but the laws of supply-and-demand don't seem to be working. The 2013 law which required overtime pay for these workers has not really helped, either, since employment agencies try to hire workers on a part-time basis, and no realistic enforcement exists to ensure the overtime payments if they were accrued.  

    For now, however, to survive, many home-care aides must sublet rooms in friends' apartments, use food stamps, and get insured by Medicaid insurance, which exists only for those at the poverty level. Some efforts are being made to improve the situation for these workers, since unionization is extremely difficult:

    • States are setting up registries of workers, to eliminate the employment-agency middleman. 
    • Similarly, there are co-operatives that have been set up by workers in Philadelphia and the Bronx. (There are many advantages to employee-owned companies.)
    • 600,000 workers have managed to form a collective bargaining unit, under the umbrella of the Service Employees International Union (SEIU). They are the group behind the pictured "Fight for $15 initiative.
    • The National Employment Law Project is trying to get home-care workers recognized as a covered group under federal labor laws, since Medicare dollars are a major source of payment for these workers. 
    • Honor, a start-up, plans to hire workers as employees and use technology to create staffing efficiencies. 

    Source: "As their numbers grow, home-care aides are stuck at $10.11," by Paula Span, New York Times, September 23, 2016.

    Follow up:

    • What do you think is the most viable alternative for improving the working conditions and compensation for home-care workers? Try to think of solutions beyond those mentioned in this article.
    • What are the advantages of an employee-owned company, or a co-op?  Are there any disadvantages to any of the stakeholders? Are there disadvantages to stockholder-owned service-business companies? Explain your answer. 

  • Product mix: Audiobooks up; e-books down

    The Association of American Publishers had this news to report about the first quarter of 2016:

    • Sales of books for adults fell by 10.3%
    • Children’s books sales dropped by 2.1%
    • E-book sales fell by 21.8%
    • Hardcover sales were down 8.5%
    • Digital audiobooks sales were up 35.3%
    • Paperback sales were up by 6.1%
    • Overall revenue was down 2.7%

    Analysts posit that eBook sales are down because the intro price of $9.99 per book--which was set by Amazon when the Kindle was first introduced--has been supplanted with market prices set by  individual publishers. This means that best-selling authors can command higher eBook prices as well as hardcover and paperback higher prices. One other factor could be that marginal authors--who might sell less than 10,000 books--now self-publish, since author revenue-per-book is higher that that when publication is underwritten by a publishing house. These sales are not counted in the Association of American Publisher's statistics.

    Moreover, reading overall has declined as well, according to a survey by the National Endowment for the Arts. In answer to the question about whether they had read "a work of literature" for pleasure in the previous year, 43% of respondents in 2015 answered "yes." In 1982, 57% of respondents answered "yes." Will this trend continue? How low will it go?

    Source: "Audiobooks Turn More Readers into Listeners as e-Books Slip," by Alexandra Alter, International New York Times, September 23, 2016.

    Follow up

    • What was the last book, other than a textbook, that you read or listened to?  What was the format--paper, e-book, or audiobook?  Do you see a shift in your own habits? How did you obtain the material you read or listened to?
    • Do you ever "steal" an eBook or audiobook from a friend who has purchased the book?  Or from a website that doesn't pay royalties to the author?  What are the ramifications, short term and long term, for all of the stakeholders? Comment on the "sharing" of intellectual property.

  • Hotel workers' union accuses China's Wanda Group of illegal contributions to ballot measure

      from Variety.com

    China's Wanda Group, also know as Dalian Wanda, is a giant multi-national Chinese corporation involved primarily in real estate and entertainment ventures. Several issues, acquisitions and events have led up the most recent controversy. The Wanda Group has a serious U.S. presence:

    • They own the AMC theatre chain.
    • They purchased the production company Legendary Entertainment earlier this year.
    • They own 35% of Paramount.
    • They purchased the former flagship Robinson's-May Company property on Wilshire in Beverly Hills, CA, which they plan to develop into a combination condo complex and luxury hotel called One Beverly Hills. If built, One Beverly Hills would compete directly with the nearby Beverly Hilton (home to the Golden Globes) and the future projects Hilton has in development.
    • They have recently been accused of making illegal political contributions to defeat a ballot measure to approve the Hilton expansion plans. The complaint has been filed by Unite Here Local 11, a union representing hotel workers currently employed by the Beverly Hilton. Payments opposing the ballot measure were made by a subsidiary of the Wanda Group.  The contributions would be illegal if the Wanda Group has a controlling interest in the entity making the contributions. Foreign contributions to U.S. elections and ballot measures are forbidden by federal law. 

    See the map above for a general idea of how the Wanda Group property is situated relative to the Beverly Hilton. Also shown on the map are the proposed projects planned by the owners of the Beverly Hilton: the Waldorf Astoria Hotel and the Waldorf condo project. Not easily seen on the map is the additional park/green space that would be created on the Hilton property. Neither the current configuration of the Wanda Group project nor the proposed Hilton project have received final approval from the city.

    Some issues with the approval of the projects exist. Can both the Hilton and the Wanda Group projects be viable? Are the proposed building heights a problem for Beverly Hills businesses and residents? The mayor of Beverly Hills heavily favors the Wanda Group project over the Hilton project. To counterbalance the political impact of this support, and its probable influence on project approval, Beny Alagem, CEO of the Hilton project's Oasis West Realty, LLC, gathered signatures for a ballot measure to get the voters to directly approve his Hilton project. Alagem asserts that the Hilton's 62-year history as part of the Beverly Hills community is the major factor in moving forward with the Hilton project. Hotel workers also support this project because the Hilton organization workers are unionized, and this project would create more jobs for unionized workers. 

    It remains to be seen whether a full investigation of the political contributions is found by regulators to have been illegal. It will also be interesting to see whether the ballot measure succeeds, and how these projects unfold. The wording of the ballot measure was revised by the courts earlier this month. 

    Source: "China's Wanda Group accused of funneling foreign money into Beverly Hills ballot measure," by David Pierson, Los Angeles Times, September 22, 2016.

    Follow up

    • Why might contributions by foreign national entities to local ballot measures be forbidden? What are the pitfalls? Are there any positives, and, if so, for whom? Also visit the One Beverly Hills link. Are there any indications on the site regarding the ownership of this project, or its political positions? What is your "take-away" from visiting this website? 
    • Why does the mayor of Beverly Hills favor the Wanda Group project? What are the plusses and pitfalls of putting a large business project's approval process on the ballot? List all of the factors that you think are relevant to the approval of either or both of these two projects. What are the stakes for Unite Here Local 11?
    • What is a controlling interest? Explain fully in your own words. What is an LLC? Explain the similarities and differences between the Wanda Group and Oasis West Realty. 

  • Will the Yahoo hack derail the Verizon acquisition?

    image from thehackernews.com

    The hack at Yahoo (that made the news this week) actually occurred two years ago. This was before Yahoo and Verizon entered into talks--tentatively finalized in July --for Verizon to acquire Yahoo for $4.8 billion. The acquisition made sense to Verizon because of the social networking and distribution channels that would complement and expand its digital media empire. Issues for Verizon include:

    • the extent of the security breach
    • the cost of a potential class action lawsuit by those harmed by the breach
    • access to Yahoo servers to do their own analysis of the breach, since the acquisition is not finalized
    • various terms of the merger agreement
    • whether or not it should renegotiate the terms of the deal

    There may be grounds to back out of the deal: Yahoo asserted in agreement "that 'there have not been any incidents of, or third-party claims alleging' security breaches or thefts of user data that might result in a major change to the value of the company."

    Without the Yahoo merger, however, Verizon has little hope to compete with Facebook and Google in the digital media arena. 

    Source: "What the Hacking at Yahoo Means for Verizon," by David Gelles, New York Times, September 23, 2016; updated September 24, 2016.

    Follow up

    • Were you affected by the Yahoo hack?  What steps are you going to take to protect yourself?
    • What were the terms of the deal agreed to in July 2016? How would you categorize the new corporate entity? 
    • Who are the stakeholders in this merger agreement, according to the article? What does each group stand to gain or lose?
  • General Motors averts union strike in Canada

     Chevrolet Impala in Oshawa, Ontario, Canada

    A recent labor agreement with Unifor, a Canadian auto workers union, might be a template for U.S. union agreements in an industry where the number of jobs are decreasing. Fewer auto industry jobs are the result of automation and production globalization. Here are some of the agreement highlights:

    • One assembly line at a plant in Oshawa, Ontario will be closed
    • ...but will be  a NEW PLANT will be built that will manufacture both cars and trucks
    • A plant in Mexico that builds engines will be closed, and relocated to St. Catherines, Ontario 

    Agreements in Canada with several Ford Motor Company and a subsidiary of Fiat Chrysler are not yet finalized. 

    Source: "G.M. and Union Avoid Strike by Canadian Workers," by Ian Austin, September 20, 2016.

    Follow up:

    • What is "production globalization" a euphemism for? Give at least three examples from various industries.
    • What auto companies are NOT unionized in Canada? Research the history of this situation, and compare the benefits and salaries paid to the workers. 
  • Immigration and Entrepreneurship

      image from theimmigrantentrepreneur.com

    Entrepreneurs are a major factor in economic growth. And, according to a recent study by the National Foundation for American Policy, more than half of the "unicorn" start-up companies (valuation of at least one billion dollars as of January 1, 2016) have at least one immigrant founder. 

    According to the study, "The billion dollar startup companies with an immigrant founder excel at job creation. The leading companies for employment are SpaceX (4,000 employees), Mu Sigma (3,500 employees) and Palantir Technologies (2,000 employees)." There have been significant hurdles, however, for the immigrant founders of these companies, in achieving permission to remain legally in the United States and continue to operate their businesses. The founders' legal status has also hindered efforts to raise capital.  

     Patrick Collison, an Irish immigrant, of Stripe; photo by Pau Barrena for Bloomberg

    Legislators across the political spectrum have agreed that the situation needs to be addressed, but none have had the political courage to fight for legislation. An executive order has made a difference for some companies, but now the Department of Homeland Security has issued a 155-page proposal to create a path for these immigrant entrepreneurs. The proposal was filed in late August, and the 45-day comment period expires in October 2016. After that, the Department of Homeland Security can finalize a process, and implement it without Congressional approval. 

    Source: "U.S. Proposes Immigration Rule Aimed at Entrepreneurs," by Stacy Cowley, New York Times, August 26, 2016.

    Follow up:

    • Why is this proposed rule a good (or a bad) idea? Relate your answer to what happened to the mobile app-based payment start-up, Stripe, and its founder Patrick Collison.
    • The H-1B Visa for foreign workers has abused, according to the article. How might this new rule possibly be abused? How can this possible abuse be prevented?
  • Pensions: "actuarial value" vs. "market value"

      Example: SERS (PA) unfunded liability calculated 2 ways

    Calpers is a large public pension fund that helps various government units in California provide defined-benefit pensions to employees. Several states have similar funds. Each year the cities or school districts or other public entities pay into the Calpers fund an actuarially-determined amount. This funds the liability for future pension payments. The Financial Accounting Standards Board, the Governmental Accounting Standards Board and federal ERISA laws have rules regarding the disclosure of current and future obligations to fund and pay out the contractually-determined pension benefits. These rules are based on actuarially-determined amounts. 

    As long as the public employee entities remain in the Calpers program, and there are no cash-flow problems that arise due to egregious under-funding of the plans, no problems with these plans come to anyone's attention. However, if an entity wants to discontinue the plan for future payrolls, the Calpers plan still has a liability to pay pension benefits later, that have accrued up to this point. That means that any "Unfunded Liability" has to be collected when the entity opts to leave the Calpers system. Since Calpers wants to have enough money to actually pay the benefits, they take a more conservative approach to calculating the Unfunded Liability at this point. They base it on a market-value approach, and make assumptions that there will not be much market growth. Therefore, much larger sums have to be paid in at the point an entity decides to leave the Calpers.

    Because each year the audited financial statement liability is calculated on the actuarial method, entities are misled into thinking this lower amount would be what their cost would be when they leave the system. It can be a serious difference between "book value" and "market value" when it comes to this liability. The article linked below explains how this situation affected Citrus Pest Control District No. 2.

    Source: "A Sour Surprise for Public Pensions: Two Sets of Books," by Mary Williams Walsh, New York Times DealBook, September 17, 2016.

    Follow up

    • What is a defined benefit pension? What is a defined contribution pension? Give examples of each. Which one is better for the employer? Which one is better for the employee? Explain your answers. 
    • How is actuarial value determined? How is market value determined? 

  • Starting a "trade war": Breaking agreements is easier than making them

    A trade agreement is often negotiated and put in place to avert a "trade war." Several such agreements exist (e.g. TPP, NAFTA).  The possible dismantling of existing trade agreements has been a talking point during the recent presidential campaigns. The limits placed on international trade by negotiated agreements are certainly not supported by everyone. Nevertheless, many consumers and business people might think that trade agreements cannot be undone without a Congressional policy fight--and many assume that Congress would thwart or modify claims to undo these agreements. 

    Justin Wolfers cites Gary Hufbauer of the Peterson Institute for International Economics in a recent NYT article, bringing to light the actual process by which trade agreements can be changed. Because Congress has delegated to the President, via legislation, its constitutional control over most changes to existing trade agreements, a sitting President can pull out of trade agreements without going to Congress first. Congress could enact legislation to rescind these powers. In the meantime, however, a President could "rip up" the agreements that do exist. Many existing agreements preclude tariffs--hence the assertion that the agreements promote "free trade." On the other hand, those with a "protectionism" bias might want to impose tariffs on foreign goods. 

    Source: "Why a President Trump Could Start a Trade War With Surprising Ease," by Justin Wolfers, New York Times, September 19, 2016. 

    Follow up:

    What is a tariff? How might they backfire? What is protectionism? Who (or what businesses) can be helped or hurt by tariffs and their consequences?

    Research the following trade agreements, then make a chart listing the pros and cons of each for multinational corporations, small-sized businesses, and for consumers: 

    • TPP--the Trans Pacific Partnership
    • NAFTA--the the North American Free Trade Agreement
    • World Trade Organization Doha Development agreement

  • JetBlue makes huge biofuels purchase

     image from www.sustainablebrands.com

    JetBlue recently announced a 330 million-gallon deal over 10 years, with SG Preston, to purchase 4% of its total fuel supply in biofuels. According to Sophia Mendelsohn, the sustainability point-person for JetBlue:

    “It’s thinking long term about our biggest cost, but its primary motivation is to reduce our greenhouse gases. What we really want to do is jump-start the industry and quite frankly enable all airlines, very much ourselves included, to diversify our fuel supply.”

    This news items supplants a more negative story earlier this month regarding one aspect of JetBlue's customer service. But the news cycle and public relations issues may not have been relevant to the current story. It may be that cost/benefit was a greater factor in the biofuels decision than customer perception...or the expressed intent to help the environment. 

    Source: "JetBlue Makes Biofuels Deal to Curb Greenhouse Gases," by Diane Cardwell, New York Times, September 19, 2016.

    Follow up

    • What are biofuels? Why do they make a difference regarding sustainability? Give some examples.
    • Would you, as a consumer, opt to fly JetBlue knowing about this purchase of biofuels? What are the major factors and minor factors in your air travel purchases, with respect to your own decision-making?
  • Is a $450-annual-fee credit card a bargain?

    When many savvy financial consumers receive a credit card come-on with a $450 annual fee, they put it immediately into the shredder.  But recently, some special-interest consumers have jumped at the chance to obtain the Chase Sapphire Reserve Card. Why? For those who want to use it for travel and dining, it actually might make good financial sense. 

    One satisfied customer is Ben Schlappig, age 26, who writes the blog "One Mile At A Time." He also travels so much he doesn't have a permanent address. The card isn't for everyone. 

    By the way, those who want to get away with a card that "only" costs $95 per year might want to look into the Chase Sapphire Preferred Card

    Source: "Value-Seekers Warm to $450 Annual Credit Card Fee," by Stacy Cowley, New York Times, September 12, 2016.

    Follow up:

    • When would a signing bonus of "100,000 points" make it cost effective to accept a $450 annual fee?  Do the math, computing what the value of each points would have to be.
    • What spending limitations for points would you accept if you signed up for this credit card? Check out the link to the Chase Sapphire Reserve Card . Would this card make sense for you?  What about the Chase Sapphire Preferred Card

  • Activision Blizzard Inc.: From bankruptcy to World of Warcraft, Call of Duty, and Candy Crush

    Video games are a serious business. Key business-success factors for Activision Blizzard, Inc.--a gaming and entertainment multinational corporation--are the same factors relevant to other global product manufacturers:

    • Product development;
    • Trained employees with up-to-date skills;
    • Knowledge of the customer base;
    • Marketing skills;
    • Distribution and logistics;
    • Quality control;
    • Investor relations;
    • Financial stability (especially if you have already gone bankrupt!);
    • Mergers and acquisitions; and
    • Vision for the future.

    These factors and others are addressed in the podcast interview of Bobby Kotick for Marketplace, linked below. Beginning as the video gaming publisher Mediagenic in 1979, and under CEO Kotick since 1991, Activision has published titles including MechWarrior, Tony Hawk, Call of Duty, World of Warcraft, and Guitar Hero. Activision has acquired more than a dozen companies over the years, most significantly Vivendi in 2008, after which it changed its name to Activision Blizzard. Activision Blizzard acquired King Digital (makers of the Candy Crush franchise) in February 2016. 

    Source: "Inside the World of Warcraft...and Candy Crush," by Kai Ryssdal and Daisy Palacios, Marketplace, American Public Media, September 13, 2016.

    Follow up

    • Discuss the bankruptcy of Activision when it was Mediagenic. What happened and what turned it around?
    • What--according to Bobby Kotick's vision for the future--drove the acquisition of King Digital in 2015? How does Kotick see Activision Blizzard growing at this point? 

  • Quiz: Credit cards

    Take this quiz (the link provides multiple choice answers for each question)

    1. The first digit on your credit card account number is a signal to those in the know. What does it indicate?
    2. How do credit card companies make most of their money?
    3. What is your maximum liability for unauthorized credit card use?
    4. What is the one certain negative consequence of taking out multiple credit cards?
    5. What is the “5/24” rule?
    6. Every modern credit card includes a swipe-able magnetic strip for storing data. What company invented it?
    7. How many credit, debit and prepaid cards are in circulation globally?

    Credit cards can be pretty easy to get these days--especially for college students. Students have no history (yet) of bad credit, so card issuing banks cannot get into trouble with regulators for making unwise lending decisions. Nevertheless, students do not always enter into credit card contracts fully aware of all of the true costs they may incur by using the cards unwisely.

    For some additional information about credit cards, check out these links: 

    Source: "What do you know about your credit card?" by Stacy Cowley and Jennifer A. Kingson, New York Times, September 12, 2016.

    Follow up: Take the quiz. Before you look at the answers, research the items you are not sure about.

  • "How I Did It"...the CEO of Delta talks about leadership and decision-making

     "How I did it"...Ed Bastian talks about Delta Airlines' comeback
        in a Harvard Business Review series sponsored by KPMG

    Leadership sometimes means making tough decisions when things are not going well. During Ed Bastian's long career at Delta (both as CFO and CEO), he

    • has had to take a 50% pay cut during a financial crisis;
    • has helped lead the company out of Chapter 11;
    • has been the point person for the acquisition and integration of Northwest airlines;
    • has made a major investment in Virgin Airlines (though he lost out to Alaska Airlines in become the majority shareholder); and
    • has negotiated key contracts with the powerful pilots' union--while in financial trouble as well as when growing the business through the Northwest acquisition.

    Recently, Delta experienced a major "outage"--a shutdown of all technological systems. This brought all airline operations to a halt--flights, bookings, arrival and departure data--everything. Bastian's years of experience taught him to take a pro-active role as soon as the problem arose--with honesty, transparency, and open communication with customers and transportation officials.  To prevent a recurrence, he has implemented and tested what he calls "redundancies"--fail-safe procedures that will catch problems when they occur and provide immediate back-up so that operations are not affected. 

    Source: "How I Did It Live: Powerful Stories of Strategic Decision Leadership from the World's Top CEOs with Ed Bastian," by Amy Bernstein, Harvard Business Review Webinar sponsored by KPMG, September 7, 2016. 

    Follow up:  List the leadership qualities that Bastian has exhibited over the years, and how each quality manifested itself. 

  • Widespread fraud at Wells Fargo goes "unnoticed"

    Over 5,300 people were recently fired for opening fraudulent accounts at Wells Fargo. And Wells Fargo itself was fined $185 million. How is it possible that this could have gone unnoticed...and unreported? You'd think that any company with a water-cooler would be generating plenty of gossip about such misdeeds...but was anyone talking about the pressures to open fraudulent accounts? And how did the internal control testing required by Sarbanes-Oxley (and supposedly performed by KPMG) have missed this? 

    I am trying to unpack this story in a way that makes sense. Curiously, three members of my immediate family were probably counted among the "victims" of these unauthorized accounts. Based on my personal experience, I am thinking that these were perpetuated, at least at the lower levels of the Wells Fargo hierarchy, as a result of a perfect storm of computer-generated instructions to employees, widespread mis-information, and general goodwill granted by customers to the institution. Here is what happened to me: 

    I do most of my banking at another bank, but about 7 years ago, when my younger daughter (as a college freshman) was opening an account at the Wells Fargo in Davis, CA, I opened an account as well, thinking that it would be easier (and cost-free) to transfer money to her account when needed if I was at the same bank.  We were both asked at the time if we wanted credit cards; we both declined. Nothing happened until about two years ago, when I received an unsolicited Wells Fargo credit card in the mail. It was already attached to the checking account that I had set up--automatic payments of the minimum amount were to be deducted from my checking account each month. The account had what was, for me, a small--$2,000--credit limit.

    I wondered what I should do about the unexpected credit card. In the intervening years since I'd opened the account, my daughter graduated and I began to use that WF account for my independent contractor income and expenses. So I considered cancelling one of my other credit cards and actually using the Wells Fargo credit card as my "business" credit card--even though I hadn't requested it. I called up Wells Fargo to ask how the account had come to be, and to request a higher credit limit. The customer service rep assured me that the card had been issued since I was such a "good customer" and she forwarded my request for a higher limit. The request was denied, as increased limits were "not a feature of this special program." I cancelled the credit card and didn't think about it again until I started reading these stories about the widespread problem at Wells Fargo. My husband and daughter were also issued unsolicited cards.  

    The credit card issuance may have been automated--programmed in by someone with no authority to create accounts, but who was following instructions from higher up. The customer service rep probably had a script and was not really aware that she was participating in anything the least bit fishy. But somewhere up the chain of command, someone was probably being evaluated based on the number of new accounts opened, and someone (or some group) had the authority to authorized the issuance of the cards and other similar unauthorized accounts.

    As an Accounting Ethics educator, I suspect that the "top down" corporate pressure to create accounts and "keep the numbers up" was a primary factor in the creation of these accounts. 

    Also, as noted in the article, this program generated very little income...and the income that it did generate may have been under the "audit risk" threshold of KPMG's audit program. Maybe it was designed intentionally to slip "under the radar." The fine has been assessed, so further details may not be forthcoming. 

    Source: "Pervasive Sham Deals at Wells Fargo, And No One Noticed?" by Andrew Ross Sorkin, New York Times Dealbook, September 12, 2016. 

    Follow up

    • Think of a situation where you receive computer records online or in email...or even notifications from within a course management system at school. Also consider your paycheck stubs and W-2's and 1099's. Do you ever question the financial information in these documents? Have you found any errors? [As a point of information, I DO find errors--every year] 
    • What kinds of solicitations for financial products do you receive in snail-mail or online? Make a list. Where are these businesses getting information about you? Have you ever said "yes" to one of these solicitations? Have there been any discrepancies between what you were sold in the solicitation and how things played out later? Discuss your experience with your friends or colleagues. Who, if any entity, should protect your interests in these solicitations?
  • Accounting scandals galore...now Monsanto

    What is going on? All week there has been news about one sort of accounting scandal or another: the U.S. Army, Tesco executives, Wells Fargo and its fictional accounts, and now Monsanto (in yet another scandal). It seems as though the new normal is NOT "follow the GAAP rules"--it is "Cheat and lie and hide and mislead...and pretend what you are doing is not wrong unless you fail to 'get away with it'." 

    This ethical norm makes the whole profession of public accountancy worth nothing. Especially if the accounting firms are involved, as they were in Enron, WorldCom , FIFA and HealthSouth scandals. (By the way, this week's Wells Fargo scandal involved KPMG).

    The latest Monsanto story involves overstatement of income in 2009 (note: this is shortly after the Great Recession), by shifting costs associated with income into 2010. The (anonymous) whistleblower who reported the problem, who received $22 million under the whistle-blowing provisions of the Dodd-Frank Act, is disappointed that executives responsible for the fraud were only minimally impacted, and that the SEC declined to prosecute Deloitte, the auditors for Monsanto. Stuart Meissner, the attorney for the whistleblower had this comment:

    “Bringing cases against auditors would put a stop to a good deal of accounting fraud... [in accounting cases like this one] there should also be an action against the outside audit or an explanation of why there isn’t one."

    Source: "Monsanto Whistle-Blower: $22 Million Richer, But Not Satisfied," by Gretchen Mortensen, New York Times Fair Game, September 9, 2016. 

    Follow up

    • If a corporation is falsifying financial records--and everyone from the clerks inputting the data to members of the board of directors know about it--whose responsibility should it be to bring a stop to the fraud...if anyone's?
    • What types of penalties would really be effective in stopping corporations from deliberately committing financial or other fraud when investors, potential investors, customers and the public are involved? Who would be hurt by these sanctions?
    • In what environment do you feel the LEAST urge to lie, cheat or steal? (for example, within your family...or within a company where everyone is paid and treated fairly in all respects).  In what environment do you feel the MOST comfortable committing some kind of fraud? Comment on why you think you might feel this way. 
  • Counter-intuitive approaches to productivity and leadership

      image from About Great Books

    Charles Duhigg, the author of The Power of Habit, has written another book about productivity: Smarter Faster Better: the Secrets of Being Productive in Life and Business. From the press release: 

    "In The Power of Habit, Pulitzer Prize-winning journalist Charles Duhigg explained why we do what we do. In Smarter Faster Better, he applies the same relentless curiosity, deep reporting, and rich storytelling to explain how we can improve at the things we do. It's a groundbreaking exploration of the science of productivity, one that can help anyone learn to succeed with less stress and struggle, and to get more done without sacrificing what we care about most--to become smarter, faster, and better at everything we do."

    I find the title of the book--as well as the hype--a bit ironic. Neither seems to convey anything of substance. They vibrate with the buzzwords that resonate with the competitive, never-enough nature of many modern workplaces. However, the Marketplace piece cuts through to illustrate one of the strands of wisdom in the book: Leisure and fun breaks are necessary--and they must be protected as non-negotiable commitments. 

    Source: "How to Become Smarter, Better and Faster in Eight Easy Steps," by Lizzie O'Leary, Marketplace, American Public Media, September 9, 2016.

    Follow up

    • What habitual behaviors have you tried to change, or have you successfully changed? What did you do? What worked and/or didn't work?
    • Listen to the Marketplace podcast and read the excerpt from the book. What tools are being used by Atul Gawande to maximize productivity?
  • U.S. Army can't account accurately for $6.5 trillion

      image from Boston Commons High Tech Network story

    The U.S. Army's accounting records are audited by the Inspector General, rather than a public accounting firm like PricewaterhouseCoopers or KPMG. The rules that apply to governmental accounting are based on Generally Accepted Accounting Principles (GAAP), but are developed by the Governmental Accounting Standards Board (GASB) rather than the Financial Accounting Standards Board (FASB), which governs public and private business accounting. 

    Nevertheless, even a person not trained as an accountant would recognize some accounting activities as incorrect. For example, this is what the Office of the Inspector General had to say about the U.S. Army's financial statements for the 2015 fiscal year: 

    "The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year."

    "Wrongful adjustments" means that the accountants totaled up the records for the year, they didn't like what they saw, then they created fictional journal entries to "plug" accounts and make the books "balance." "Plug" means to back into a number without having any underlying justification. For example, if a person took $40 out of the ATM on Tuesday, and she looked in her wallet on Thursday and saw $8...then she could deduce that she had spent $32; she might "plug" the account "business meals" for that amount if she was keeping records--whether or not that was really the expense. In this analogy, the person might reasonably be able to estimate the accounts involved, but in the Army's case, accountants were fictionalizing transactions just to arrive at the results they wanted to see.  

    According to the Inspector General it is not possible to produce any reliable set of books for the 2015 fiscal year for the U.S. Army's activities and expenditures. Would shareholders in a corporation accept this result from an audit? 

    Source: "U.S. Army fudged its accounts by trillions of dollars, auditor finds," by Scot J. Paltrow, Reuters, August 19, 2016. 

    Follow up:

    • Would you categorize the journal entries made to balance the Army's financial records as "fraud"? Why or why not? 
    • How would the SEC react if a publicly-traded corporation's auditors reported this accounting situation?

  • Poison pills, boards of directors and corporate structure

     image from WSJ story from an earlier ownership fight.

    Airgas is the largest American industrial gas supplier. It was started in the 1980's and went public in 1986. It is an example of a solid, product-oriented company that has grown in the United States in a period of time when service businesses were on the upswing and production companies were on the decline.  Airbags has been a takeover target for several years--but it is finalizing this week an an agreement with Air-Liquide (France) that was made in November 2015. Notably, Airgas has provided value to many stakeholders. CEO Peter McCausland said in a message to investors: “Today’s history-making transaction is the culmination of more than 30 years of growth and value that we have steadfastly delivered to Airgas shareholders." Shareholders will receive $143 per share.

    During 2010 and 2011 there was a particularly difficult fight for control of Airgas (purchase of a controlling number of corporate shares). The Airgas board of directors implemented a "poison pill" to prevent a takeover by Air Products. It might seem that a rise in share price because of a takeover would benefit shareholders, but often the motivations of a big investor are against the values and interests of the company whose stock is being purchased. Air Products took Airgas to court to determine how long a board could keep a poison pill provision in place; the court decided in favor of Airgas. Typically, the poison pill provisions kick in when one shareholder begins to aggressively acquire stock, and the percentage of ownership by one shareholder goes over 10% or 15%. 

    In any event, the Airgas "company line" is that the sale to Air-Liquide at this point will be beneficial to shareholders, customers and employees.  

    Source: "Why Airgas Was Finally Sold, for $10 Billion Instead of $5 Billion," by Leslie Picker, New York Times, September 5, 2016. 

    Follow up:

    • Some of the stakeholders involved in corporate activity are: board members, senior executives, employees, employee-stockholders, other investors and customers.  Explain how a poison pill, as described in the article, affects each of these stakeholders.
    • Read the link to the explanation of a poison pill. Summarize how different types of poison pills work in terms of maintaining or changing corporate structure.

  • PEST analysis: Political, Economic, Social, Technological

    image from businesstudynotes.com; click to enlarge

    PEST analysis is a truncated version of PESTLE analysis, which also includes Legal and Environmental factors. It is a framework for evaluating where a business, a  particular business project, or another entity exists at the time of the analysis, with respect to these four or six factors.  

    A PEST analysis of the United Kingdomwas done as an example earlier this year by Pestle Analysis, a consulting company. For each of the four factors, both positive and negative realities are listed. For example, a positive quality of the UK political environment: "Relatively ‘fair’ country, with the public having a large influence on the inner-workings." A negative aspect: "Some well hidden corruption.

    An advantage to this type of formal analysis is that major factors related to business decision-making are not left out. Also, it allows positive and negative factors to be evaluated and weighted in a transparent way. 

    Source: "An example PEST analysis of the UK," by Thomas Bush, Pestle Analysis, May 9, 2016. 

    Follow up: Do a brief PEST analysis of your college or university. 

  • Apple tax ruling: Ireland, the European Union and global fairness

     image from the Business Insider 

    The European Union issued a ruling this week: Apple owes Ireland $13 billion in back taxes. This ruling has raised a big question: Why is Ireland objecting to if they will receive a financial windfall? 

    The short answer is that SEVERAL companies benefit from being "headquartered" in Ireland, and subject to its maximum 12.5% corporate tax rate.  (The U.S. maximum corporate tax rate is $39.6%.) But Apple has not paid anywhere near the 12.% rate in many years. They have used loopholes to reduce their tax rate even further. Nevertheless, at whatever rate, this represents "free income" to Ireland, and they don't like the idea that they might lose it because corporations fear the threat of back taxes. 

    Other multinational corporations involved in Irish residency tax schemes are Starbucks and Fiat.

    Source: "The Apple Tax Ruling: What this means for Ireland, tax and multinationals," by Simon Bowers, The Guardian, August 30, 2016.

    Follow up: Follow the money flow in the chart above. Who has been losing under this tax scheme, over the last decade?  Who has been winning? (Name all of the stakeholders, please, including Apple stockholders and citizens of various countries). What would be fair in the long run?