Archive for December 1st, 2007
Filed under: Management
So far, Europe has lagged behind the United States in terms of exorbitant compensation being heaped on top corporate executives.
But Porsche CEO Wendelin Wiedeking’s $100.2 million pay package is sparking controversy in Germany. I consider myself a big supporter of strong corporate governance, but a big pay package isn’t a problem by itself; it’s only a problem when it is completely out of line with the fundamental growth of the company.
At Porsche, that may be the case. According to the Wall Street Journal (subscription required), “In its most recent financial statement, Porsche disclosed that it made more money in its latest fiscal year from trading derivatives than it did from selling cars. It said earnings from stock-option transactions contributed a pretax €3.59 billion to the overall result.”
Here’s the problem: Trading derivatives for big profits can be hugely risky, and profitability can be fleeting in a way that operational growth (e.g., selling cars) isn’t. Paying executives huge bonuses for gambles that paid off is bad for two reasons: First, it’s completely unwarranted (Maybe they just got lucky) and, secondly, it can encourage rampant speculation. They’re playing with shareholders’ money for a chance at big profits. If they lose big next year, they probably get fired — but hey, he just made $100 million!
Maybe the company isn’t taking big risks with derivatives trading, but I seriously doubt it; as Long Term Capital Management and the Orange County crisis taught us, big rewards in derivatives generally come with big risk, even if it isn’t apparent when the money is rolling in.
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Filed under: Private equity
You think subprime is a mess? We may have another big-time problem — the leveraged buyout (LBO) binge. This week’s Barron’s [a paid publication] has a good piece on the matter.
Private equity firms tend to focus on mature companies, which produce lots of cash flows. There is usually a good amount of cost-cutting as well. But for the private equity firms to make real money, they need to pile on the debt. This is fine — so long as there is enough cash flow.
Unfortunately, it looks like the U.S. economy is slowing down. As a result, some LBO deals may fall apart because they can’t meet debt payments.
Wall Street is already getting nervous. For example, Barron’s points out the sluggish bond prices for companies like Realogy, Swift Transportation, Linens ‘n Things, Claire’s Stores and Dollar General. Some buyout deals are even trading at about 50 cents on the dollar.
All in all, we may see wipe-outs of the equity stakes for private equity firms. It’s a good bet that the returns — for 2008 to 2009 — will pale in comparison to the boom times.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements . He also operates DealProfiles.com.
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Filed under: Consumer experience, Television, Rants and raves, Marketing and advertising, Entrepreneurs, Film
This post is part of AOL Money & Finance’s Best & Worst of 2007. Be sure to cast your vote for the most overpaid celebrity of the year.
 Oprah Winfrey returns to our Most Overpaid Celebrity category after having lost the title to Paris Hilton last year. For 2007 she is joined by overpaid celebrities Madonna, George Lopez, and Russell Crowe.
Winfrey, Madonna, and Lopez all made the Forbes Celebrity 100, a ranking of Hollywood players by pay, influence, and popularity. Winfrey, of course, comes in at number one, both in terms of pay and power. Madonna’s earnings placed her at number nine on the list, while Lopez came in at number fifty-one.
Forbes estimates Winfrey’s earnings at $260 million last year, and her net worth in the area of $1.5 billion, making her the nation’s wealthiest African American. She’ll be adding two new reality shows to her media empire, which already includes a blockbuster daytime talk show, satellite radio show, magazine, and Broadway musical, as well as stakes in hit shows by Dr. Phil McGraw and Rachael Ray. The school for girls she founded in South Africa has drawn much media attention this year, and she’s recently endorsed Barack Obama’s presidential campaign. Winfrey has been called the world’s most powerful woman, the most influential woman in the world, one of the most influential persons of the 20th century, the world’s first black woman billionaire, and the greatest pop culture icon of all time. Can any mortal person live up to all that hype?
Continue reading Best & Worst of 2007: Most overpaid celebrities
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Filed under: Wal-Mart (WMT), Employees
On November 20th, I wrote about the tragic, and appalling, tale of Deborah Shank — a Wal-Mart (NYSE: WMT) worker rendered severely brain damaged after a crash with a truck.
Her insurance, provided by Wal-Mart, paid for her medical needs, and Ms. Skank and her husband received $700 thousand in a settlement from the trucking company that crashed into her. Then Wal-Mart, a $190 billion company, sued for the money to recoup the amount it spent on her medical care.
The legality of the move aside, it’s appalling on a moral level. WalMartWatch has more information avaiable, and also collecting donations to aid the family. That site sums it up well:
This holiday season, Wal-Mart rolled out a new slogan: “Save money. Live better.”
But who lives better with Wal-Mart’s low prices? Clearly, it isn’t Wal-Mart employees like Deborah Shank.
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Filed under: Products and services, Consumer experience, Apple Inc (AAPL), Wal-Mart (WMT), Marketing and advertising, Media World
In the United Kingdom, retailers have “urged the music industry to drop piracy protection for online downloads after new figures showed the average Briton has bought fewer than three digital tracks in the past three years” according to the Financial Times. The Entertainment Retailers Association also states that anti-piracy methods have inhibited growth in the digital market and are “working against the consumer interest.” The three tracks in three years figure is slightly hard to believe, but another point in the article made me think about the upcoming holiday season and digital music players.
The Financial Times remarked that the ERA is urging the music industry before the Christmas season because hopes are that digital sales could grow tremendously in January for consumers that want to load up their new players. While the average user might not be able to tell the technological benefits of Digital Rights Management (anti-piracy) free tracks, they can certainly enjoy the ability to easily transfer said track without having to worry about the tedious protection measures. Unfortunately, anti-piracy protection seems to inevitably require the consumer to sign in and confirm purchases, no matter the length of time since it has occurred.
DRM-free technology (anti-piracy) software has come under fire since February when Apple Inc.’s (NASDAQ: AAPL) Steve Jobs challenged the music industry to drop usage of the technology. So far the challenge has only been partially successful with London-based EMI the only music company to fully drop DRM and offer higher quality tracks for sale in various digital stores, including iTunes. The other music companies have not been as quick to adopt a DRM-free position, with Universal Music Group the only other label even beta testing files without it.
Continue reading Post-holiday iPod-iTunes sales based on anti-piracy software?
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Filed under: Blogs, Marketing and advertising, Politics
Back in July, I wrote about network marketing giant Amway/Quixtar’s self-imposed 120-day moratorium on recruiting in the United Kingdom, a response to a Department of Trade and Industry complaint against the company. Many critics charge that Amway is operating a thinly-veiled pyramid scheme, based on the same principles as the chain letter.
Well earlier in November, Amway blogged about its plans to return to the region, posting a memo that had been sent to directors and employees, and also forwarded to many of the company’s United Kingdom distributors.
Here’s where it gets interesting. Many people, myself included, have charged that the FTC is not doing enough to crack down on multi-level marketing companies using false and misleading recruiting tactics. based on the text of the memo, Amway seems to agree:
“The fact is, in the wake of this sobering experience, every one of us — employees, IBOs, and others — should renew our commitment to hold ourselves to the highest standards of behavior. The marketplace — and in the UK, the government — has made it clear that they expect no less. And when falling short of those standards exposes our company to such grave risk, there can no longer be any such thing as ‘business as usual.’” (emphasis added)
In other words, the government of United Kingdom has made it clear that it will hold Amway to the highest standards of behavior — but the United States has not followed the lead.
Perhaps Amway’s massive political contributions have had something to do with that. it’s a shame that our elected officials are putting the interests of special interest groups ahead of those of consumers. That’s just business as usual in the land of the free, home of the brave.
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Filed under: Earnings reports, Dell (DELL), Campbell Soup (CPB), Sears Holdings (SHLD), Staples Inc (SPLS), Marvell Technology Group (MRVL)
Here are a few highlights of this past week’s earnings coverage from BloggingStocks:
Also, Jim Cramer offers perspective on the problem with Sears Holdings. And AOL Money & Finance’s new dynamic stock quotes pages make keeping up with earnings, and any other stock-related information and news, much easier. Check it out.
Upcoming results to watch for include: AutoZone Inc. (NYSE: AZO), Novell Inc. (NASDAQ: NOVL), and National Semiconductor Corp. (NASDAQ: NSM).
Visit AOL Money & Finance for more earnings coverage.
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Filed under: Rants and raves, Workspace
This post is part of AOL Money & Finance’s Best & Worst of 2007. Be sure to cast your vote for the most overused buzzword of the year.
We all have our pet peeves in the evolution of language. Mine is the misuse of “quality” as an adjective, as in — say, “that’s a quality mullet you have there!” Quality is a scale of measurement, people, not a unit of measure.
That being said (which should have made the list), we have a quality set of annoying buzzwords as our candidates for the most overused in 2007.
#1. Take that offline; as in, quit embarrassing yourselves by engaging in an IM flame-war and solve your problems in a face-to-face slap-off. We would prefer that those who use the term “take that offline’”would, um, take it offline.
#2. Globalization. Also flat earth, global integration, global supply chain, etc. We get it that we put on pants made in Thailand, shoes from China, a shirt from India, get in our car made in Romania, and drive to our office to work for a Belgian company selling widgets to Indonesia. No mas, por favor!
Continue reading Best & Worst of 2007: Most overused buzzwords
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Filed under: Dell (DELL), Wal-Mart (WMT), Amazon.com (AMZN), Target Corp. (TGT), Small business
 On so-called “Cyber Monday,” another record was broached, as U.S. online shoppers clicked-up $733 million in sales. Some of the top performers included Wal-Mart (NASDAQ: WMT), Dell (NASDAQ: DELL), Target (NYSE: TGT), and Amazon.com (NASDAQ: AMZN).
These are the big players. But I’m sure there could have been even more sales, had smaller online venues been able to keep up in terms of technology and customer service. In other words, e-commerce sites can still be complex — enough to foil would-be buyers, and resulting in abandoned virtual shopping carts.
How can you improve your online store?
Continue reading Entrepreneur’s Journal: Cranking out more cash from e-commerce
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Filed under: Forecasts, Venezuela, Politics, Oil
Hugo Chávez, the head of Venezuela, is hardly the most stable leader of a large nation. He may rank with Kim Jong il of North Korea in a race for odd-ball national presidents.
The mental state of the chief of a South American country may not seem terribly important until, that is, he threatens to cut off the supply of oil to the U.S. According to The Wall Street Journal (subscription required), “in a fiery speech before tens of thousands, President Hugo Chávez alleged the U.S. was planning to sabotage a vote Sunday on proposed constitutional changes and threatened to cut off oil shipments if Washington did so.”
The odds that the CIA or some other organization is actually trying to mess with the elections in Venezuela are fairly small. But, given the history of the American intelligence community, they cannot be ruled out altogether.
Humor aside, if Mr. Chávez does make good on his threat, even if only because he is mad, the effect could be much greater than the explosion last week on one of the oil pipelines between Canada and the U.S. Hugo can take the price of a barrel of crude up to $100 all by himself.
As December rolls in, oil watchers will be turning their attention south. Oil’s assault on $100 was turned back last week, but that was not the end of it.
Douglas A. McIntyre is an editor at 247wallst.com.
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