• The Wizard of Lies: Bernie Madoff revisited


     The Wizard of Lies trailer

    The story of Bernie Madoff is a classic drama involving business ethics. Madoff was the financial manipulator behind the largest Ponzi scheme in American history. A Ponzi scheme is set up so that the earlier investors are given "returns" which are not really earnings on their investment. Early investors get cash from the investments made by new investors--and the amounts are large, creating a vibrant market for new investors.  When the system crashes, the last investors lose everything. 

    Ponzi schemes are made transparent within a financial statement that is a required part of annually audited financial statements: the Statement of Cash Flows. Because the change in cash is separated into three categories, it is easy to see where the money paid out actually comes from. The three categories are Cash from current earnings, Cash from (or paid for) investment assets, and Cash from stock investments or loans. A Ponzi scheme would not have escaped any audit done with integrity. 

    The 2016 television film on Bernie Madoff, starring Richard Dreyfuss, told the tale from Madoff's point of view. This year's version, starring Robert De Niro, is based on the book Wizard of Lies: Bernie Madoff and the Death of Trust by Diana B. Henriques. The book focused on the wide swath of financial destruction for institutions and individuals that Madoff's scheme caused. 

    Sources:

    Follow up:

    • Everyone is involved in situations where there seems to be a reluctance to ask the required follow-up question or discuss an "elephant in the room." Describe such a situation in your personal experience. What are your feelings about this situation? Describe three possible scenarios in terms of how the issue might play out, and what might be the consequences of each. 
    • Read the last sentence of the Noel Murray review, after you have read the other review (and/or even watched one or both of the films): "They also cut to the core of what this film is about: a man so corroded that he assumes everyone’s as awful as he." Do you agree or disagree with Murray's opinion regarding Bernie Madoff? What motivated Madoff? Explain your position. 
    • Research and describe the original Ponzi scheme. 

  • Celebrities help create sexual harassment training that addresses real issues


     "The Boss"--part of That's Harassment series, YouTube

    Federal and state laws forbid sexual harassment, and some states mandate that employers proactively train employees about what behaviors constitute illegal harassment. But many employers approach this task as a "compliance mandate" that has to be satisfied in form. As a result, much of the the training lacks the substance needed to make it effective. Maybe you have been subject to some of this training. 

    As Jane Kasperkevic notes in article linked below, "To many U.S. workers, sexual harassment training has become synonymous with being cooped up in stuffy conference rooms with their co-workers watching cheesy, unrealistic videos. That kind of training goes in one ear and out the other. For many companies, the main concern is checking the training off their to-do list. Instead of tackling the issue and trying to build a culture where sexual harassment is not tolerated, they buy liability insurance in case an employee sues and move on. And playing those videos counts as training."

    The EEOC received over 6,700 harassment complaints in 2016. Employers paid out $40.7 million in damages. Nevertheless, some employers still try to get away with doing the minimum. This communicates that the company does not have any interest in changing the environment of harassment. As Kasperkevic points out, "Videos designed for companies just concerned with compliance depict blatant and unrealistic behaviors. Sexual harassment in the modern workplace is much more complicated." 

    But many people DO care about the issue. A group of celebrities that includes Cynthia Nixon, Michael Kelly, Emmy Rossum, and David Schwimmer have recently put together six short films as part of a #thatsharassment public service series. (Based on true stories!). These were released on Facebook and there have been more than a million hits. Maybe the message is getting out to a wider audience via social media.  

    Source: "Yes, those sexual harassment training videos are terrible," by Jane Kasperkevic, Marketplace, American Public Media, May 30, 2017. 

    Follow up

    • What do the letters in the acronym "EEOC" stand for?  What does the organization do?
    • Watch "The Boss" above, and other videos from #thatsharassment. It what ways are they effective? How could they be improved?
    • What does "form vs. substance" mean? Give examples of how the concept relates to sexual harassment training, as discussed in the digital article. 
    • Here are some other issues where form vs. substance might come into play--select a few and comment on your personal experience with them, or think up issues on your own:
      • buying a used car that looks good vs. a used car that runs well
      • eating a cake that got dropped onto a serving dish on its side
      • wearing a pair of new white sneakers vs ones you've worn for a few weeks in the mud and rain
      • taking a job with a nationally-known company that looks good on your resume, but where your boss is bored and the position offers no training or career development opportunities; vs. a job that you love with an inspiring supervisor and a palette of growth opportunities

        .

  • A "fat start-up" creates a new housing sales model


        image from 123RF.com

    The start-up Opendoor offers a new way to sell your house: Opendoor will buy it outright, charge you a convenience fee, and close the transaction within a few days. How is this possible? Opendoor is capitalized with $300 million in equity, which gives them the power to leverage even more. Opendoor is a "fat start-up."

    What is a "fat start-up"? Mark Suster, a venture capitalist and "serial entrepreneur," differentiated lean and fat start-ups several years ago:


       Mark Suster on Lean and Fat Start-Ups (You Tube)

     "Lean start-ups" have been the norm since the 2008 recession, as they minimize risk. But information technology--the ability to analyze enough sales data to accurately predict the resale price of a house--also minimizes the risk. Also, because houses are actual tangible assets (rather than intellectual property...or even "vaporware"), this start-up model is now able to raise a large amount of capital. So far, Opendoor has been able to sell houses within 90 days. 

    It sounds pretty good--which means that other companies are entering the business. I wonder if, over the next decade, we will see a disruption in the real estate industry in terms of this radical new template for home sales.

    Source: "The Rise of the Fat Start-Up," by Farhad Manjoo, New York Times, May 24, 2017.

    Follow up

    • What are the risks to the investors in Opendoor? Who are the other stakeholders? What are the risks to them? (Think big)
    • What does leverage mean? How does it apply to individuals trying to buy their own house? How does it apply to business financing? Give an example. 

    .

  • Ethical issues involving Malaysian financier dooms NYC luxury real estate deal


      from The Edge TV, YouTube

    In 2013, Malaysian financier Jho Low made Steven Witcof's extravagant plans for the NYC Park Lane property seem possible. Low had promised 85% of the financing, and had provided twice the usual non-refundable down payment ($100 million instead of $50 million). The sales price was $684 million, but considerably more financing was in place for the renovation. Witcof planned to build a "superpower of ultra-luxury apartments" on this perfectly situated property in central Manhattan. “This was the best site in New York City and maybe the world,” said Mr. Witkoff. “We designed what the entire partnership thought was a beautiful building. Little did we know we’d face circumstances like this.

    The circumstances to which Mr. Witcof was referring was the discovery that Low had stolen the money from the people of Malaysia in a complicated money-laundering scheme. The U.S. Justice Department filed a civil forfeiture action against Mr. Low and the Park Lane property, accusing Mr. Low and Najib Razak of using $3.5 billion in a Malaysian development fund to invest in their own business ventures. These ventures included:

    • the Park Lane property
    • a luxury hotel in Beverly Hills
    • condominiums in NYC
    • expensive works of art
    • partial financing of The Wolf of Wall Street.

    Real estate deals are often set up as partnerships, as this one was, because the tax benefits associated with real estate can flow directly to the tax returns of the individual partners. Partnerships also can be formed and dissolved more easily than corporations. Legal liability, however, is sometimes a consequence when other partners act in bad faith. This aspect is a major downside of the partnership form of business.

    Source: "Malaysian Money. Opulent Ideas. But Now, for Park Lane, a Forced Sale." by Charles V. Bagli, New York Times, May 23, 2017.

    Follow up:

    • Read the article. Who built the original Park Lane Hotel, and what infamous personality lived in the luxury penthouse? What are some other facts about the hotels' history?
    • Describe the other scandals and international entities involved that were associated with the 1MDB, partnership formed to purchase the Park Lane Hotel.
    • How did Witcof come to be in partnership with Low? What may have been some red flags? What kind of due diligence might have prevented Witcof from becoming involved in this deal? Do you think he might have actually known the risks beforehand?

  • Productivity slowdown: What if things AREN'T changing faster than ever?


     image from Paste Magazine

    The world is changing faster than ever, right? Isn't that common knowledge? Economist Robert Gordon tested out this premise by researching and organizing changes by date. He wrote a 700 page book called The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World). His research suggests that the rapid change was a one-time event, and that common knowledge may be based on an erroneous but understandable perspective. 

    The assumption that technology and growth is at an historical maximum--and likely to increase--probably comes from a perspective of how stagnant things were at an earlier time in the past. The podcast notes that a delivery person in the late 1500s (using a cart; not having running water) had the same type of life as a delivery person in the early 1800s. Many changes, however, occurred between the early 1800s to the 2000s.  Gordon analyzes post-industrial events. As a macroeconomist, he focuses on productivity growth. His research points to a slowdown around 2004. 

    Other analysts have also commented on the productivity slowdown:

    Middle and upper middle class success depends on productivity, so the realities of the business environment are a major factor in understanding and planning for the future. What does this mean for you?

    Source: "Episode 772: Small Change," by Jacob Goldstein and Sally Helm, NPR: Planet Money, May 19, 2017. transcript

    Follow up:

    • Make a list of the changes that have occurred in your lifetime. Chart WHEN these changes occurred. Do you see a slowdown within your lifetime? What do you expect to be changed 40 years from now? Write them down and put them in a "time capsule" to be opened at a future date.
    • Ask your parents or grandparents about the technological, scientific, medical, economic and lifestyle changes that have occurred in their lifetimes.  List those in timeline form.
    • Read Paul Krugman's review of Gordon's book. Research the perspectives of others as well (linked above). Do you agree with the premise asserted by economist Robert Gordon? Why or why not? 

  • Probably a bad financial move: credit card loans


     image from Quicken Loans

    Unexpected expenses--a car breakdown, being forced to move, a medical problem--can create a need for a loan to cover your cash flow. Sometimes, the easiest source of a personal, unsecured loan is a credit card advance. Your bank may even have sent you unsolicited offers of a "cash advance" on your credit card. Here is why they might not be a good idea:

    • There is almost always an up-front fee for cash advances--often the higher of $10 or 5% of the balance.
    • Interest rates are high: often up 24% annually, compounded monthly--and even as high as 36%.
    • Cash advances do not offer "rewards points" as purchases do. 
    • They may affect your credit score.

    There are, however, some worse sources of emergency loans: 

    Card-holders should also be aware that buying foreign currency with a credit card is also considered a cash advance.

    Source: "Steer Clear of this 'Bad Idea': Cash Advances on Credit Cards," by Ann Carrns, New York Times, May 19, 2017.

    Follow up:

    • Check out the terms on one of your credit cards. What is the up-front fee for a cash advance of $2,000? What would the monthly interest amounts total up to, if you did not pay down this balance for a year? What is the total cost of this loan for a year, assuming you would be able to pay it off it full at that point?
    • Do you ever receive offers by mail, encouraging you to get a cash advance by writing yourself one or more of the provided checks? Read the find print and locate the opportunity to opt out of this type of mailing. Consider exercising good financial discipline and have yourself removed from these mailings. 
    • Is there ever a situation when this type of loan might make sense? Describe the situation and how the borrower could avoid or mitigate the pitfalls associated with this type of loan.

  • The AT&T strike: job creation rhetoric and job loss


    from YouTube

    A 3-day AT&T strike began this weekend: more than 33,000 workers have walked off the job, protesting the lack of a fair contract proposal by AT&T management. The workers's union, the Communications Workers of America, has cited these issues:

    • AT&T has sent 12,000 call-center jobs overseas.
    • Retail jobs have been outsourced to non-owned retail locations, where the workers are not unionized and are paid less.
    • Employees are being asked to pay higher costs for health care coverage.
    • The retail commissions structure has been changed unilaterally, resulting in a loss of pay for employees.

    AT&T is not expected to suffer much from the strike, as it has a cadre of managers who can take over workers' jobs on a short term basis. The company also feels that it has offered fair wage and pension increases (amounts were not given in the articles, which is typical in the middle of negotiations).

    Sources:

    Follow up:

    • What are at least two major factors in the business environment that hamper the union's ability to negotiate for the workers? What might mitigate this problem? Follow the links in the New York Times article to find background information on this issue, as well as reading the sourced article and listening to the Marketplace podcast.
    • Why do both sides of a contract negotiation often agree not to disclose the terms of the intermediate offers that are under discussion? What are the pros and cons of transparency?
    • What is the effect of a strike on "job creation" numbers? Why is it significant? 

    .

  • Another ethics scandal: UnitedHealth and Medicare billings

    United Health Group has been sued by the Justice Department. The Justice Department alleges that UnitedHealth has over-billed Medicare by hundreds of millions dollars per year. It appears that UnitedHealth systematically made patients look sicker than they really were. Top managers at UnitedHealth Group appear to have been involved. The motivation was a plan to meet Wall Street revenue expectations. 

    As in several cases, it is one brave whistleblower that has gotten things started. Benjamin Poehling, a former finance director for UnitedHealthcare Medicare and Retirement, was the whistle blower. The Justice Department joined the action that he started.

    Another entity, "Medicare Advantage" is involved. To understand the ethics problem, it is important to understand how Medicare and Medicare Advantage work and intersect. 

    Each dot in the graphic below, illustrating how these programs work, is explained in the text below the graphic:

    Traditional Medicare:

    1st dot, first line: Traditional Medicare members pay a monthly premium to the Centers for Medicare and Medicaid Services (C.M.S.), whether or not they visit a doctor. C.M.S. also receives funding from U.S. taxpayers.

    2nd dot, first line: Under Traditional Medicare, members see a doctor, the doctor sends a copy of their medical report to C.M.S., to get paid.

    3rd dot, first line: C.M.S. pays the doctor. Traditional Medicare compensates doctors according to the procedures they perform — lab tests, scans, operations, etc.

    Medicare Advantage members:

    1st dot, second line: Medicare Advantage members also pay a monthly premium to C.M.S., and often a separate premium to a private insurance company.

     2nd dot, second line: If members see a doctor, the doctor sends a copy of the medical report to the private insurer, who then pays the doctor.

    3rd dot, second line: C.M.S. pays the private insurer a base rate for each member. If the private insurer tells C.M.S. that the member required treatment for certain conditions, C.M.S. pays the insurer more.

    According to the article linked below:

    "Under the government’s popular old-age health program, Medicare Advantage, reporting unhealthier customers led to bigger payments from the federal government — $3 billion worth to UnitedHealth from 2010 to 2015 alone, according to the complaint. The Justice Department said misrepresenting people’s health was a civil fraud and sued for triple damages and other penalties."

    Mr. Poehling, under the False Claims Act, filed a suit in 2011 as a private citizen suing on behalf of a government agencies he believed had been defrauded. 

    Source: "UnitedHealth Overbilled Medicare by Millions, U.S. Says in Suit," by Mary Williams Walsh, New York Times, May 19, 2017.

    Follow up:

    • What is the "fraud triangle" and how can it be used to analyze behavior within a corporation, specifically in the UnitedHealth situation?
    • What does Benjamin Poehling stand to gain, if anything? Cite your sources in your answer. 

     

  • Selfie booths boost brand marketing

      Photo credit: Dolly Faibyshev for The New York Times

    What is the latest thing in selfie photography? The "selfie booth." In the photograph above, clients Kat Cohen and LaShonna Holloway are taking a photo in a special selfie booth at Tracy Anderson Method (a trendy, elite fitness chain). Other businesses that have used these booths include:

    • Warby Parker, a usually-online eyeglass retailer, has retail outlets with booths set up for customers to send "Should I get these?" photos to their friends.
    • Paintbox, a nail studio, has a selfie booth for clients' manicured hands to be photographed.
    • Doomies, a vegan restaurant in Toronto, has a special basement selfie room for diners to take selfies they can caption--and at least half of their under-35 year old new customers use it. 

    Sure, a lot of people take selfies at establishments they patronize WITHOUT using a selfie booth, but dedicated selfie rooms benefit both the customer and the business. Customers get to look their best for Instagram because they are well-lit and well-framed by the adjustable camera. Businesses can use the booth for product placement and design to help solidify a "look." One more medium in which to get across a message...

    Source: "Step Into Our Selfie Booth and Help Us Build Our Brand," by  New York Times, May 17, 2017.

    Follow up

    • Have you seen a selfie booth in any establishments that you frequent? Was it being used? Did you use it? What branding elements were could you see in the booth?
    • How can businesses use these rooms for maximum marketing effect? Select two types of businesses and brainstorm ideas.

  • "Freelance isn't free": unionized Independent contractors get law passed in NYC


      image from the union campaign
     

    New York City freelancers get shorted an average of $6,000 a year by businesses hiring them. When individuals brought this to the attention of the Freelancers Union, an  organized effort resulted in a law that gives freelancers clout in collecting what is owed to them. The "Freelance Isn't Free" Act (Local Law 140 of 2016) passed in October 2016, and went into effect on May 15, 2017. 

    The law provides for:

    • a written contract
    • timely and full payment
    • freedom from retaliation
    • a process by which complaints can be filed against late or non-paying hiring entities
    • penalties for employers who violate their agreements

    Interestingly, the law is viewed by many observers as a win for employers as well. 

    Source: "New York freelancers have a new law on their side," by Aaron Schrank, Marketplace: American Public Media, May 17, 2017.

    Follow up

    • Listen to the podcast and read all of the links above. How did the law get passed? What needs to be done now to increase its effectiveness?
    • What are the penalties for employers who short independent contractors? Are these fair? How would you improve this law?
    • Why is this law also good for businesses that hire independent contractors as well? 

    .

  • The elephant in the room: big business wants its tax cut NOW


    f
    rom NBC News

    Are this week's political headlines what big business wants to see? The firing of FBI chief James Comey blindsided nearly everyone, and may have ramifications for near-future political stability. Generally, big business favors a predictable environment, with expectations fulfilled. This week's surprises may be unsettling. As far as the numbers go, Wall Street's reaction to Trump's firing of FBI director Comey was mixed. On the day of the announcement, the S&P 500 was up 0.05%, the Dow Jones Industrial Average fell 0.17%, and the Nasdaq added 0.09%.

    But big business, which expected a lot from the Trump administration, may be most concerned about a change that will affect their bottom line. Matthew Peterson, a high-ranking analyst for LPL Financialshared these thoughts:

    "I think the biggest issue is what this does to the Trump agenda in taxes. The market really is expecting a cut. We still feel it's a matter of when, not if a cut happens. But any thought this gets pushed to 2018 is a market negative."

    Will the next big story to hit the news cycle be a tax cut for big business, along the lines promised by the White House? We'll see if the administration gets down to the business of government. 

    Source: "Wall Street Dissects What Trump's Come Firing Means for Agenda..." by Keris Allison Lahiff, TheStreet.com, May 10, 2017.

    Follow up:

    • Do some research. If there is no tax cut this year, what do analysts think will be the reaction of big business, lobbyists and investors? 
    • Summarize the recent tax cut proposal from the White House and comment on the likelihood (according to experts) on its passing both houses of Congress. 

    .

  • Stitch Fix, Inc. uses algorithms to thrive in retail market


     one of dozens (if not hundreds) of personal vlogs reviewing Stitch Fix

    Stitch Fix, Inc. is an online retail store that does all the shopping for each customer. Each customer first fills out DETAILED surveys, and can also post pictures of their best looks to Pinterest. Stitch Fix analyzes the results of the questionnaires and creates a box of 5 items per month for each customer--hand-picked to their taste. The cost of this algorithm-driven "personal shopper"service is $20, which can be applied to any purchase that month. Return shipping for unwanted items is free. There is a 25% discount if all items shipped are purchased in a given month.

    What is interesting about this start-up is that it is growing while other retail companies are failing to meet sales goals...or closing altogether. Also, Stitch Fix also doesn't fit the typical Silicon Valley model of obtaining "gazillions" in venture capital funds. The modest investments it has received ($42 million) have caused them to manage their funds on a lean model...and a "lean lean" model. Their growth has been solid. Last year its sales were $730 million.

    The key to their success? According to CEO Katrina Lake, it is "delivering what consumers want: making it easier to shop."

    Source: "As Department Stores Close, Stitch Fix Expands Online," by Michael J. de la Merced and Katie Benner, New York Times DealBook, May 10, 2017.

    Follow up:

    • What other companies have followed a similar marketing plan to Stitch Fix? What have been the results?
    • What are Stitch Fix's IPO prospects?
    • Check out Stitch Fix. Does Stitch Fix has options for men?  

    .

  • Snap share price falls in reaction to poor financial results


      investment analysis of Snap, Inc. as of March 2017 (IPO)

    Snap Inc., the parent company of Snapchat, had a disappointing first quarter. It lost $2.2 billion--much of which was the result of IPO-related compensation paid. The stock price fell from $22.98 (at the close of trading today) to $17.18 in after-hours trading, after the financial results became public. Snap's IPO price was $17 per share.

    On the positive side, revenues for this quarter, $146.6 million, were much higher than 2016 revenues for the first quarter, $38.8 million. 

    Nevertheless, the number of Snapchat users, 166 million, fell short of the expected 169 million users. This may have been due to competition from Instagram's Stories.

    Oh, Snap.

    Source: "Oh, Snap! Shares drop 25 percent after disappointing results," by Jana Kasparkevic, Marketplace: American Public Media, May 10, 2017.

    Follow up

    • Research the stock movement of Facebook, Yelp and Twitter after their IPOs. Compare those results to Snapchat's. How are Facebook, Yelp and Twitter doing today?
    • Watch the video linked above. Summarize the content.
    • Would you invest in an IPO for a social media company? What are the risks?

        .

  • Establishing value: the Tooth Fairy, an employment contract, and the government

    PM images/Getty images via the podcast linked below

    NPR's Planet Money posed these questions recently:

    • What is the value of a lost tooth to the tooth fairy...over the last 40 years?
    • What is the value of an "Oxford comma"...when clarity in an employment contract is involved?
    • What does "$1 trillion" mean...with respect to a governmental budget ?

    Alan Blinder, former vice-chair of the Federal Reserve Board, was consulted with respect to the value of a lost tooth over time. (He was considered an expert because one of the major responsibilities of the Fed is to manage inflation.) Based on an informal survey of what kids were getting in the 1970's (50 cents a tooth), today kids should be getting $3 per tooth. But the figure is higher. Parents reported that kids in their circles were currently getting "anywhere from $5 to $20 a tooth".) But Delta Dental has been formally polling customers for twenty years on this matter. According to Delta, the 2017 tooth fairy is doling out an average of  $4.66 per tooth.  In any event, the price of a lost tooth is rising faster than the rate of inflation. According to the podcast, Planet Money calculated lost tooth inflation to be 10% per year. Alan Blinder says that, at least for the past decade, inflation in the U.S. has averaged 2% a year. 

    What might this discrepancy mean? Another economist, Justin Wolfers, explained it this way: "income elasticity of demand." Reporter Kenny Malone unpacked the economic jargon with this analogy:

    "So let's say that you get a raise - 10 percent. If all of a sudden you started making 10 percent more, that doesn't mean that you're going to suddenly spend 10 percent more on every single part of your life. You're not going to spend 10 percent more necessarily on food, for example. But there are these categories of things that we might spend more than 10 percent more on now that we have the money. And Wolfers suspects that children are one of those things we like to splurge on."

    The second valuation question deals with an employment agreement between dairy truckers and their employers that is based on a law in Maine. The truckers worked 10 or 12 hour days, but were paid for 8 hours--no overtime.  This difference amounts to $10 million--and hinges on a "missing" Oxford comma. 

    What is an Oxford comma? If you look at the headline for this post, you can see a second comma after the word "contract." This is called an "Oxford comma" and many argue that it should be omitted because it is not needed because the word "and" is a sufficient separator in the series. However, there can be ambiguities when it is omitted. The statute in question says that all workers are to be paid overtime, EXCEPT a worker involved in canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of perishable foods. 

    The truckers' interpretation is that they are involved in delivering a perishable food, but are NOT doing the work of "packing for shipment or distribution." If they are not excepted, then they are due the overtime pay. The case is still in the courts. 

    The third question involves government spending for infrastructure--$1 trillion as promised by the White House. But government contracts are tricky and there are several categories of projects--bridges, roads, sewers, dams. One trillion dollars would not even fix the projects that have been identified in New York City, according to the podcast. 

    Value is trickier than it may seem at first...

    Source: "Episode 759: What's it Worth to You?"[podcast], by Robert Smith, Kenny Malone, Noel King, NPR: Planet Money, March 17, 2017. [transcript]

    Follow up

    • How much money could you lose or misplace without it upsetting you?  One dollar? Twenty dollars? Fifty cents? Ask your friends, your siblings and your parents what that number is for them? What determines the amount of money that is important?
    • I re-computed the tooth fairy inflation computation in a two-column spreadsheet, starting at 50 cents and moving forward 40 years. By trial and error, I found the price increase for a tooth to be closer to 5%, compounded annually. This is not the figure that Planet Money got. Do your own calculation, or contact the people at Planet Money to get the details on how they arrived at the 10% figure. 
    • Who do you side with in the Oxford Comma case? Why?

    .

  • The Medium and the message


           a previous post on the website Medium

    "The medium is the message," is a quote from Marshall McLuhan in his 1964 book Understanding Media: The Extensions of Man. At the time, he was addressing television's effect on society. An example of his thesis was that children's TV programming itself--a passive and entertaining environment--would have more of an effect on society than the content of the shows that the kids watched. Observers have commented on what McLuhan might say about the current use of technology. But the developers of the blog platform Medium (the company name, not the type of communication vehicle) were thinking of a different meaning of the word "medium" when they launched the site. 

    The blog platform Medium is a vehicle for business leaders (and employees..or anyone) to make their views heard and promulgated as though they were news or feature stories, a service which overlaps the function of a press release. The posts average around 600 words--longer than a tweet, but shorter than an op-ed essay. Medium CEO Ev Williams had this to say about the genesis of the site: 

    "We thought: Well, a tweet isn't long enough for a lot of ideas, so might we build a platform with a constraint, but it's not super short, maybe it's medium length. We were in a conference room and wrote Medium on the whiteboard, and I said: ‘That's what we should call it'."

    CEOs have used Medium to defend a product or unfortunate event, and to offer apologies or compensation. Employees have used the site to make public labor practices which they consider to be unfair. Investors have commented on the behaviors and compensation of senior managers. 

    A communication medium where business stakeholders can communicate directly with a population they wish to reach--as well as receive comments and feedback--can be an efficient tool as part of a marketing and branding strategy. 

    Source: "Medium: The go-to place for CEO's to share their stories," by Jana Kasperkevic, Marketplace; American Public Media, May 5, 2017.

    Follow up:

    • Peruse the Medium website. Give some specific examples of how businesses have used Medium as a communication tool. 
    • What is a "press release"? Compare and contrast a press release with a Medium blog post. 
    • Can anyone post directly to the Medium website?  If not, describe the vetting process for blog publication. If so, describe the process.

    .

  • Cyber risk guidelines published by AICPA


      AON Affinity executive discusses cyber risk via AICPA and YouTube

    The AICPA, which is the professional organization that promulgates standards for accounting reporting and auditing, is issuing guidelines on assessing and mitigating cyber risk. Amy Pawlicki, who is the vice president of assurance and advisory innovation at the AICPA, gave one reason why the guidelines are important:

    “Everybody is at risk of getting breached. The framework gives companies a way to show that they’re doing the best that they can to avoid a breach or respond to a breach if that happens.”

    Protecting company assets is a main factor in establishing good internal control--and computer information is a key asset. In addition, the purchase of cyber insurance can provide a hedge against the costs that may be incurred in the event of a breach. "Description criteria" in the guidelines provide benchmarks for establishing procedures to protect computer information. "Control criteria" allow companies to test the effectiveness of the procedures that have been implemented. 

    Source: "AICPA To Roll Out Third Part of Cyber Risk Management Guidelines," by Rheea Rao, Wall Street Journal, May 4, 2017. 

    Follow up

    • Why are cyber risk guidelines relative to annual financial reporting for publicly traded corporations?
    • According to the video above, what are the three major risks that face CPA firms regarding cyber risks?

    .

  • Paid interns average $3,000/month in 2017


     CNBC: the highest paid internships 2017 via YouTube

    The National Association of Colleges and Employers reports that internships, including paid internships, are more numerous than they have been for several years. They report that paid interns, who typically do the same work as entry-level employees, are averaging $3,000 per month in 2017. They also qualify this statistic by noting that it is difficult to measure the number of unpaid internships that exist, so those figures are not included in the average.

    The tech industry interns in the video above actually make more than most full-time workers in the United States. So those extremely high-paid positions are the exception. Intern pay ranges are subject to factors that include: location, individual talent and preparation, the size of the intern pool for a skilled position, and the industry standards. 

    Source: "Paid interns are averaging $3,000 a month," by Reema Krais, Marketplace: American Public Media, May 4, 2017. [podcast]

    Follow up

    • What are the pros and cons of an internship for the employer? Why have many companies moved from unpaid internships to paid internships?
    • What might be the possible downsides of interning for a company in any industry? Do some research before you respond. What are the advantages of an internship--paid or unpaid--for the intern?

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  • Marketing the holidays few have ever heard of


      from the DailyHolidayBlog.com

    If surfing social media or watching local news, the casual reader is likely to run into a holiday or two that is not recognized by their employer or any union contracts. Some examples: 

    • National Splurge Day (June 18)
    • ...Puppy Day (March 23)
    • ...Potato Chip Day (March 14)
    • ...Donut Day (first Friday of June)
    • ...Pretend To Be a Time Traveler Day (December 8)
    • ...Garlic Month (April...with Garlic Day being April 19)
    • International Talk Like a Pirate Day (September 19)

    These "weird holidays" are used to inspire marketing campaigns...or maybe the marketing campaigns create the holidays. The linked podcast explores how public relations personnel pitch holidays to media sites...and that Congress has actually passed laws that formalize these holidays. 

    In this 24-hour-news-cycle era, the holidays meet a need of broadcasters to fill air time, so the relationship works well between the entities pitching a product (and getting a free venue for promotion) vs. the media producers' need for stories. Publishers of holiday calendars (e.g. Chase's Calendar of Events) make money selling calendars to those who might benefit. 

    By the way, two of the holidays that occur today, May 3, 2017, are National Raspberry Popover Day and National Lumpy Rug Day. 

    Source: "Episode 765: The Holiday Industrial Complex," by Kenny Malone and Noel King, National Public Radio: Planet Money, April 18, 2017. [transcript]

    Follow up:

    • According to the podcast, how do these holidays evolve? Be sure to discuss the individual who calls them "holi-dates."
    • Check out any holiday list to which you can obtain free internet access.  Pick three holidays that you think have the potential to be the most successful in terms of increasing sales of a particular product or products. What other entities might benefit? What is the ideal target demographic for each of these three holidays? 
    • Go to Checkiday.com. Look up your own birthday or any date of your choosing and list the various "holidays" that occur on that day. For example, the holidays that fell on September 7th included: Google Commemoration Day; Feel The Love Day; Grandma Moses Day; Acorn Squash Day; Neither Rain Nor Shine Day; and Salami Day. And when that date falls on the first Monday in September, it is the more widely recognized Labor Day. 

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  • USAFacts: Steve Ballmer's financial transparency project launches this week


    TEDx March 2017 via YouTube: Steve Ballmer talks about USAFacts

    Steve Ballmer, a "numbers guy" who retired from his position as CEO of Microsoft in 2014, is about to launch a new project: USAFacts.orgThis is a database of financial information about where the U.S. government gets its money, and how it spends it. Ballmer describes it as a set of financial information equivalent to the 10-K documents filed by publicly traded companies, as required by the Securities and Exchange Commission.

    Pulling this together took $10 million (from a combination of personal funds and grants). Ballmer says that he is "happy" to provide operational funding of three to five million dollars a year as well. He can certainly afford it. I am grateful for this new source of information--especially since it was pulled together by someone with a reputation for integrity...and whose personal curiosity led him to develop this "wonky" site. I have already learned that government entities employ over 24 million taxpayers in the United States.

    By the way, if Steve Ballmer's name sounds familiar, but you just can't place it--he also owns the L.A. Clippers basketball team. 

    Source: "Steve Ballmer serves up a fascinating data trove," by Andrew Ross Sorkin, New York Times, April 27, 2017.

    Follow up

    • Visit the website. What data surprised you?
    • Evaluate the website for ease of use and quality/quantity of material presented.
    • What factual numerical data is (maddeningly, to Steve Ballmer) illegal to post? How and why did this become law?
    • What is a 10-K and why is it an SEC requirement?
  • How to be a winner under Trump's proposed tax plan


       Minh Uong, NYT

    The headlines about Trump's proposed tax plan mostly opine that it represents a huge tax cut for the wealthy. But the article linked below highlights a different aspect of the plan. Like current tax law, there are loopholes...but unlike current law, there is a significant loophole that could benefit individuals.

    Under current tax law, the maximum tax rate on personal income earned as an employee is 39.6%. Under the tax plan proposed by the White House last week, the maximum rate would be slightly reduced to 35%.  However...the maximum rate for business income would be significantly lower: 15%. "Businesses" would not only include big publicly traded corporations, but also LLCs. These LLCs (limited liability corporations) are sometimes owned and operated by just one person. They are currently taxed on a "pass-through" basis, which means they are taxed at the personal rate as though they were a sole proprietorship ("Schedule C" on a 1040 federal tax return) or a partnership (1065 tax form with K-1s that flow to the 1040).

    Therefore, if an individual incorporated and received their income through an LLC, their maximum tax rate would be 15% not 35%: a huge difference.

    Incorporation could have unforeseen consequences--some of which differ from state-to-state. For example, in California, there is an annual filing fee of $800, plus additional progressively higher fees on gross incomes above $250,000. A careful analysis must be undertaken, with several "what-if" scenarios, before deciding to incorporate.

    Source: "Under the Trump Tax Plan, We Might All Want To Become Corporations," by Neil Irwin, New York Times, April 28, 2017.

    Follow up:

    • Research the filing fees and requirements in your state for LLCs. If your adjusted gross income from your business is $100,000, what would you net after taxes under the current tax structure (Federal income tax only)? What would you net if the 15% proposed rate was in place, after you had paid the filing fees and an additional $500 in tax preparation fees?
    • What other factors (pro and con) would affect a decision to incorporate? Consider short and long term consequences, some of which are addressed in the linked article.
    • Explain the similarities and differences among the following: C-corporation, S-corporation, sole proprietorship, LLC. 

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