Archive for the ‘General Business’ Category.

Customer Service Fail

I called Bank of America to stop payment on a check -- for some reason this seems to be one function that cannot be performed online.  I got right through to their business banking number.  However, they told me my account actually qualified for their special preferred, presumably premium, customer service number.  So they transferred me.  And I am still on hold, having waited now for over 10 minutes.  I have no idea why they couldn't solve my simple problem at the regular number without a transfer and long hold.

Making Money in a Declining Business

One of the lessons we learned at business school is that there can still be money to be made in a declining business.  Today's case in point:  AOL.  The butt of much Internet-related humor, did you know that AOL still has 3.9 million US subscribers?  To give a sense of scale, that makes its subscriber base about as large as Charter Communications, a not insignificant 6th place player in the cable TV market.  Its income statements are a total mess, cluttered with enough special charges and unusual income items to scare me off from touching the stock, but it looks like it is still making about $50 million a quarter on about $500 million in sales.  Not what it once was, but not an awful business either.

A company like this run for cash flow could do well for quite a while for shareholders.  Of course, companies like that are seldom run for cash flow -- that is not how corporate management incentives work.  Corporate managers are going to want to take the cash flow from the declining business and try to build some new kind of empire on the corpse of the old one.  Shareholders can reasonably ask why they are not just dividended the cash to make their own reinvestment, but insiders benefit much more if the cash is reinvested within the company.  And sure enough, AOL seems to be buying a ton of small companies.

A Note on 501(c)4 Corporations

This whole notion that  501(c)4 groups are receiving some kind of huge implicit tax subsidy whose use needs to be policed is simply absurd.  I am a board member of several 501(c)6 trade associations, which have roughly the same taxation rules as 501(c)4.

The largest tax subsidy, by far, available to some non-profits is the deductibility of donations to the group.  This is available to 501(c)3 groups (traditional charitable organizations) but NOT to  501(c)4 or  501(c)6 groups.  Whether the Tea Party of Cincinnati is a  501(c)4 or not, you cannot deduct your donations to them.

The one tax break that  501(c)4 corporations get is that they do not pay taxes on any surplus they accumulate in a year.  In general, non profit groups like this collect donations and spend them.  So in general, their outlays match their revenues, such that they tend to show very little income anyway, even if it were taxable.  The only thing the non-profit status brings to  501(c)4 organizations is that they don't have to spend a lot of time and effort trying to make sure, at the end of the fiscal year, that expenditures and revenues exactly match.  Basically, the one benefit granted is that these groups can collect money in November for expenditure in January without paying taxes on this money.  This is hardly much of a subsidy, just a common sense provision.  (By the way, at least in a  501(c)6, there is no break from the paperwork.  We will have to pay an accountant to file a tax return for the Feds and the state of California.

This actually comes up from time to time in my industry.  A couple of my competitors are actually non-profits.  My for profit competitors always complain that these non-profits have an advantage, arguing that they are really for-profit, but just paying their "owners" large salaries rather than dividends.  My general answer is, so what?  My company is a subchapter S corporation, and it does not pay taxes either -- I pay taxes on the profits as regular income in my personal tax return, exactly as if I had paid out all the profits as salary.  Sure, it would be nice to accumulate profits in the company tax free, but seeing the shoe-string way my non-profits competitors run, I don't think that is what they are doing.  It used to be that as non-profits, they considered themselves immune to certain laws, like the Fair Labor Standards Act and minimum wage, but the courts have disabused them of that notion.  So it is hard to see what advantage they enjoy, but folks love to complain none-the-less.

The only real business advantage I have ever found these non-profits have is in perception among leftish politicians -- they are considered "clean" while as a for-profit company I am considered "dirty".  Which is why in California, early laws allowing outside companies to operate public parks allowed non-profits but not for-profits, and almost every state who goes this route tries non-profits first for the same reason.  This no longer bothers me -- anyone who had ever been part of a non-profit can probably guess the reason.  They really are not set up to operate a 24/7/265 service business, and within a year typically fall short, and I, with a bit of patience, then get my chance.

Spam Masquerading as Official, Important Mail: Paramount Merchant Funding

It's been a while since I have received a fake "check" whose cashing obligates me to a four year contract, or a deceptive yellow pages solicitation, or even my favorite, the board minutes services that masquerade as an official government form.  So I will highlight Paramount Merchant Funding for this over the top message on the front of their envelope they sent me, again in an apparent bid to masquerade as some sort of official mail that must be opened.

paramount-merchant-funding

The scam here is clever -- I don't have time to bother looking it up, but my guess is that this message is literally true - for all mail sent through the USPS.  But it is obviously meant to virtually force someone to open it thinking it is official, which I was dumb enough to do.

They seem to have a perfect 1-star review record over at Yelp, a fact I could have called in advance sight unseen.  They have more BBB complaints in the last year (5) than my company has in our whole history (0).

NPR on the Obamacare-Driven Shift to Part-Time Work

I don't have time to excerpt but, as I predicted, the media is finally catching up to the enormous shift (mainly in the retail and service sector) to part-time work.    I had a long article on this at Forbes last week.

Never Miss A Good Opportunity to Shut Up

It strikes me that a service business model that relies on frequently suing your customers is not really sustainable.

My folks out in the field operating campground face far greater problems with customers than any of these petty complaints that Suburban Express is taking to court.  My folks have drunks in their face almost every weekend screaming obscenities at them.  We have people do crazy things to avoid paying small entry fees.  We get mostly positive reviews online but from time to time we inevitably get a negative review with which we disagree (e.g. from the aforementioned drunk who was ticked off we made him stop driving).

And you know how many of these folks we have taken to court in 10 years?  Zero.  Because unless your customer is reneging on some contractual obligation that amounts to a measurable percentage of your net worth, you don't take them to court.

Yes, it is satisfying from an ego perspective to contemplate taking action against some of them.  There are always "bad customers" who don't act in civilized and honorable ways.   But I  tell my folks that 1)  You are never going to teach a bad customer a lesson, because by definition these same folks totally lack self-awareness or else they would not have reached the age of fifty and still been such assholes.  And 2) you are just risking escalating the situation into something we don't want.  As did Suburban Express in the linked article.

The first thing one has to do in the customer service business is check one's ego at the door.  I have front-line employees that simply refuse to defuse things with customers (such as apologize for the customer's bad experience even if we were not reasonably the cause).  They will tell me that they refuse to apologize, that it was a "bad customer".   This is all ego.  I tell them, "you know what happens if you don't apologize and calm the customer down?  The customer calls me and I apologize, and probably give him a free night of camping to boot."  In the future, if this dispute goes public, no one is going to know how much of a jerk that customer was at the time.  Just as no one knows about these students in the Suburban Express example - some may have been  (likely were) drunken assholes.  But now the company looks like a dick for not just moving on.

This is all not to say I am perfect.  It is freaking amazingly easy to forget my own rule about checking one's ego at the door.  I sometimes forget it when dealing with some of the public agencies with which I am under contract.  One of the things you learn early about government agencies is that long-time government employees have never been inculcated with a respect for contract we might have in the private world.  If internal budget or rules changes make adhering to our contract terms difficult, they will sometimes ignore or unilaterally change the terms of our written contract.

And then I will get really pissed off.  Sometimes, I have to -- the changes are substantial and costly enough to matter.  But a lot of the time it is just ego.  The changes are small and de minimis from our financial point of view but I get all worked up, writing strings of eloquent and argumentative emails and letters, to show those guys at the agency just how wrong they are.  And you know what?  Just like I tell my folks, the guys on the other end are not going to change.  They are not bad people, but they have grown up all their lives in government work and have been taught to believe that contract language is secondary to complying with their internal bureaucratic rules.  They are never going to change.  All I am doing is ticking them off with my letters that are trying to count intellectual coup on them.

To this end, I think I am going to tape these two lines from Ken White's post on the wall in front of my desk

  • First, never miss a good opportunity to shut up.
  • Second, take some time to get a grip. You will not encounter a situation where waiting 48 hours to open your mouth will destroy your brand.

Anachronism

Apparently, Google is building a huge a showy hub for its corporate aircraft.  Does this strike anyone else as an anachronism, from the folks who bring us Gmail and Google groups?  It's like the Fedex having a Pony Express account.

By the way, if anyone read the fabulous book "Barbarians and the Gate," they** will remember RJR Nabisco's construction of a corporate aircraft palace in Atlanta marked the beginning of the end of that company's fiscal extravagance.

 

** I know this is grammatically incorrect, but I am exhausted with English's lack of a third person singular gender-neutral pronoun and hate saying "he or she."  English is a language built bottom up from actual usage, so lacking any better idea, I support "they" as the solution.

KFC and China

Apparently YUM Brands stock is falling because investors are worried about KFC's prospects in China.  I am not a YUM supporter particularly, nor am I a patron of KFC, but from some exposure to China I can say that KFC in China is like Taco Bell in the movie Demolition Man.  They own the market.

Unlike All Those Passive People, I Am Waiting to Be Handed My Big Break

This is an amazing and self-refuting cry for help by Kate MacKay (via Maggies Farm)

By and large, my friends and my friends’ friends are all intelligent, educated, gregarious, and creative. They’re insightful and thoughtful. They’re critical and ambitious. So why do so many employers put them in positions that don’t take full advantage of what they’ve got to offer?...

But this is really bad talent management on the part of our employers. If you have ambitious, smart young people who actually want to do more work and use their talents to the maximum – so that they can grow as people and employees – then you’re an idiot as an employer to not take advantage of this....

The places that we work for are chock-a-block with people who are contented in their positions; they’re sitting low in their saddles, riding out the last miles toward the sunset of retirement. They’re not interested in changing horses any more, the way we are, and so those saddles that we want to have remain full, often by people who have lost more than just their ambitions for new jobs. They’ve lost the drive to get things done quickly, they’ve lost creativity, and they’ve especially lost the outsider’s perspective on the job they do and the company they work for. They’re entrenched in the corporate culture of the place, and nothing kills innovation or ambition faster than people dedicated to the status quo....

This is where I am, and many of my friends are in this position too, just hoping and waiting for either the next better job outside, or some radical shift inside. I’ve thought seriously about changing my LinkedIn profile blurb to something like, “My career goal is to gain a position that energizes, excites, challenges, and values me, so that I can continue to develop my skills and talents, and grow as a person.” I wonder if that would catch anyone’s eye?...

OK, stay with me, I am saving the good part for last, but it is important to get this background.  This person is seriously confused.  Companies do not exist to give one jobs that match one's skills.  In fact, they do not exist to provide jobs at all.  They exist to serve customers and thereby generate surpluses for the owners.  They hire people to do specific jobs that are part of a process to serve these customers and owners.

I am sympathetic to the notion that there is lost value in my employees, that they can do things that might be useful to me that I do not tap.  But I have 500 employees.  I have time to customize like maybe two of those jobs to the talents of individuals, and these are high level jobs where the benefit of that time commitment on my part is worth it.  For the rest of the employees, I have to be satisfied I am missing some value, because at best I don't have the time or resources to customize jobs to every employee's unique snowflakeness.  And at worst, such customization would mess up our customer service process.  At some level, I don't want every front line employee inventing his or her own imagined customer contact or cash management process.

But I promised you the best is yet to come. and here it is:

All of them wonder when their break is going to come, when the thing they’re doing will finally spill over from ‘just making it work’ to ‘making it.’ And I wonder that too, because this risk-taking group of determined individuals should be rewarded by the universe, I think, for their innovation and dedication. The other group, sitting undervalued at their desks, should be likewise rewarded for their abilities and ambitions.

My overall sense is that we’re all in the same place, sitting together in a kind of employment purgatory, waiting for something to happen. We keep working – we’re not sitting idle. We apply for jobs, we network, push for promotions or projects, advertise ourselves, and keep our eyes on the horizon. We are striving, ever striving, for the thing that we want that we know we can do. Economists be damned, we’re all just waiting for our big break, and we won’t be satisfied with a comfy saddle riding toward the sunset.

Did you get that?  This risk-taking and proactive group is determined to sit on their ass and wait for someone in the universe to appreciate them, for some organization to create a perfect job that gives each employee snowflake his or her perfect work experience.

Jeez, I have had a series of sucky jobs over time.  So as advice to those that think a proactive job search encompasses seriously considering a new Linked-in profile blurb, I did two things:

  • I changed jobs, and eventually went to work for myself.
  • I stopped defining my total-life fulfillment by what I do for a paycheck, and took on other tasks outside of work (blogging, writing, building) that brought me satisfaction but for which people have been as-yet unwilling to pay me.

Best Buy: We Focus on Items People Don't Buy from Walmart or Amazon

Well, that is not exactly what they said, but this confirms some earlier casual observations of their stores I have written lately:

Shoppers typically associate Best Buy with TVs and computers, but the retailer plans to dedicate more floor space to appliances in the coming months as the housing market continues to improve.

Here is my translation:  Half of our floor space has gone digital (DVD, CD, games) and the other half has items where Amazon and Walmart are killing us.  But we are locked into long-term leases we can't break for a bunch of freaking large stores so we need to put something out there.  So we will try appliances.  Next up, mattresses?

Problems at UPS

I continue to have shipments lost - badly lost - recently at UPS.  After 10 years of not a single foul-up, UPS has now lost or mis-routed five important shipments of mine in just 3 months.  In several of these cases, shipments that were supposed to be overnight did not get delivered for 4 or 5 days.  More worrisome, the packages seemed to sit (according to the tracking) in random locations until I called and forced something to happen -- there did not seem to be any sort of automatic intervention to save or reroute them.  In the most disturbing case, a woman in Arizona called our office to tell us that our Florida payroll had just been delivered by UPS to her house.

This is particularly worrisome because most of our shipments are date critical - payroll that has to be somewhere on a particular date or bids that must be delivered by a certain time or be voided.  Recently we have taken to paying extra and shipping everything one day faster than we need to give UPS room to screw up - ie overnight when we actually have two days to the due date.  But even so, UPS has fouled two shipments up so badly they were late even with an extra day to spare.

My statistics memory is rusty, but my guess is that my very few samples of a very large system don't necessarily indicate a process problem to any significance.  Still, we are worried.  The problem is I don't know who to switch to -- we left Fedex when they screwed up two of our first three shipments.

On Purchasing in Bulk

My son ordered a book from my Amazon account (the Way of Baseball by Shawn Green) and accidentally had it sent to my house rather than to his dorm.  Looking at my shipping costs on UPS to get it up to him, it was cheaper to buy a new copy for him and have Amazon ship it for free with my Prime membership than it was for me to ship the other copy to him.  I would love to see what Amazon pays UPS.  This is a $24 list price hardback book that Amazon sells for $9.60 and then packages and ships for free.

Statements I Believe Unequivocally

"Everybody with half a brain is coming to California"

-- Governor Jerry Brown

Portents of Doom at Local Barnes & Noble Store

I visited B&N the other day -- tellingly not to buy anything but as a way to kill time while my daughter was shopping.    What I saw gave me a serious case of deja vu -- where the book store used to be all, you know, books, there were now large sections dedicated to toys and games and collectibles and other such stuff.

This totally reminded me of the last days at CompUSA, when floor space originally all dedicated to computers and software was being used for DVD players and appliances and all kinds of odd stuff.  I see the same thing now at Best Buy, with workout equipment and other oddball products.  I told my son on a visit a year ago to Best Buy to expect to see the a larger appliance selection next time we visit.  He asked why, and I said "because Wal-Mart does not generally sell them, and not a lot of people buy their large appliances at Amazon."  Sure enough, you see more appliances nowadays.

I don't think that converting your over-sized book store into an under-sized department store is going to work.  It is hard to shift a retail chain's positioning, though it is possible (anyone remember when the Gap was just a Levis store?)  But things like leases and locations are really sticky, making it hard to change fast if your new concept needs more or less space or different locations.

A Really Bad Deal

In Obamacare, it was mandated that health insurance companies spend 85% of premiums on care (vs. marketing, profits, and overhead) or else they owe their customers a refund.  So if the same standard was applied to unions, how much of their dues would they have to refund?

For example, according to the most recent federal filings, the Michigan Education Association — the state’s largest labor union — received $122 million and spent $134 million in 2012. They averaged about $800 from each of their 152,000 members.

According to union documents, "representational activities" (money spent on bargaining contracts for members) made up only 11 percent of total spending for the union. Meanwhile, spending on “general overhead” (union administration and employee benefits) comprised of 61 percent of the total spending.

The union appears to have spent nearly the entirety, or $119 million of their $122 million in dues, just supporting their leadership  (and various politicians) in grand style.  They actually had to borrow $12 million to do their job of representing their members.

By Obama's standard of good management (core activity costs = 85% of total customer dues paid) then the union should have taken only $17.4 million from their members, and owe them a $104.6 million refund.

People Constantly Amaze Me

My company has an email list folks can join to get emails if we have jobs available.  We have about 15,000 people on the list and get hundreds of applications whenever there is a new job, even though we probably have fewer than 20 openings a year.   I got this email today from someone I suppose must have added his name to the list:

Do you know that since I signed up with youI have not recieved ONE e-mail from you about jobs ???  Are you holding out jobs for friends ? Do you just get people to sign up then forget them for fun ??  Or is it that you have no job leads ???
Why did I waste my time signing up with you ????????????

Certainly this man's willingness to turn the smallest frustration into an enormous imagined slight with hints of conspiracy is EXACTLY what we are looking for in our customer service staff.

Corporate DNA

Almost exactly seven years ago (amazing how long I have been blogging) I wrote an extended piece about how hard it is to change corporate DNA.  I was writing about GM but also used Wal-Mart as an example.  Part of this piece read:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

Megan McArdle makes some very similar points as I about Wal-Mart and how hard it is to change corporate DNA.  I recommend you read the whole thing.

The Biggest Economic Story of 2013...

Sorry, but it is not the fiscal cliff.   It is the complete shift in the US labor model, at least in the service sector, due to Obamacare.

Here is what I am doing for the rest of the year -- working with every manager in my company so that as of January 1, 2013, none of our employees are working more than 28 hours a week.   I think most readers know the reason -- we have got to get our company under 50 full time employees or else I am facing a bill from Obamacare in 2014 that will be several times larger than my annual profit.  I love my workers.  They make me a success.  But most of my competitors are small businesses that are exempt from the Obamacare hammer.  To compete, I must make sure my company is exempt as well.  This means that our 400+ full time employees will have to be less than 50 in 2013, so that when the Feds look at me at the start of 2014, I am exempt.  We will have more employees working fewer hours, with more training costs, but the Obamacare bill looks like about $800,000 a year for us, at least, and I am pretty sure the cost of more training will be less than that.

This will be unpopular but tolerable to most of my employees.  The vast majority of them are retired and our company is merely an excuse to stay busy, work outdoors, and get a little extra money.

But this is going to be an ENORMOUS change in the rest of the service sector.  I have talked to a lot of owners of restaurants and restaurant chains, and the 40-hour work week is a thing of the past in that business.  One of my employees said that in Hawaii, it was all the hotel employees could talk about.   Many chains are working on mutli-team systems where two teams of people working part-time replace the former group of full-time employees.  2013 is going to see a lot of people (who are not paid very well to begin with) getting their hours and pay cut by 25%.  At the same time that they are required, likely for the first time since many are relatively young, to purchase health insurance.

It will be interesting to see what solutions emerge.  My bet is that it will become standard for people in the service sector to work two different jobs for 20-25 hours each with two different companies.  This will be a pain for them, but allow them to keep their income up.  The hard part may be coordinating shifts between companies.  For example, a company that divides their shifts into mon-tue-wed vs. thu-fri-sat cannot share employees with one who divides their shifts between morning and afternoon.  If given time, I would guess that just as the mon-fri workweek emerged as a standard, companies may adopt standard ways of dividing up the work weeks for part-timers, making it easier for schedules to mesh.

Twinkies Going Galt

Via Fox News

Hostess Brands — the maker of iconic brands such as Wonder Bread and Twinkies — is shutting down and firing 18,500 workers after one of its unions refused to end a strike even after being warned it would kill the company.

The privately-held company had reached a deal with the Teamsters, but a smaller union representing bakery workers refused to agree to concessions, prompting the mass layoffs and closing down of hundreds of plants, bakeries and delivery routes. That prompted harsh words from both the company and from Teamsters officials.

"We deeply regret the necessity of today's decision, but we do not have the financial resources to weather an extended nationwide strike," Chief Executive Gregory Rayburn said in a statement. "Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders."

I suppose Michelle Obama and Michael Bloomberg are celebrating

Something I Was Reminded of Today

The world's most unproductive task is attempting to enforce self-awareness on someone else.  Keeping this one truism in mind, while shelving one's ego, seems the best approach to solving conflicts in my business, whether it be with partners, employees, or customers.

Bid Rigging for Municipal Asset Management

Rolling Stone Magazine has an good story on the conviction of a number of banks and brokers on charges of bid-rigging, specifically on contracts for short-to-medium term management of municipal bond cash accounts.  Apparently brokers were paid by certain banks to be given a look at all the other bids before they made their final bid.  The article focuses mainly on the ability of winning bidders not to bid any higher than necessary, though I would suppose there were also times when, given this peek, the winning bidder actually raised its bid higher than it might have to ace out other bidders.

This is classic government contracting fraud and it's great to see this being rooted out.  I am not wildly confident it is going to go away, but any prosecutorial attention is welcome.

But I am left with a few questions:

  • It seems that government contracting is more susceptible to this kind of manipulation.  Similar stories have existed for years in state highway contracting, and the municipal bond world has had accusations of kick-backs for years.  Is this a correct perception, or is the rate of fraud between public and private contracting the same but we just notice more with the government because the numbers are larger, the press coverage is greater, and the prosecutorial resources are more robust?
  • If government contracting of this sort is more susceptible to fraud, why, and how do we fix it?

The latter is not an academic question for me.  I run a company that privately operates public recreation areas.  I bid on and manage government contracts.  Frequently, a major argument used against the expansion of such privatization initiatives is that past government outsourcing and contracting efforts have been characterized by fraud and mismanagement.  The argument boils down to "the government has so many management problems that it can't be trusted with contracting for certain services so it needs to operate those services itself."

The only way to reconcile this view is to assume that private actors are more likely to act fraudulently and be dishonest than public employees.  If this were true, then the public would be safer if a public management process of questionable ability were applied towards public employees rather than outside private contractors, because those who were being managed would be less likely to take advantage.  And certainly there are plenty of folks with deep skepticism of private enterprise that believe this.

However, I would offer that only by adopting an asymmetric view of what constitutes fraud would we get to this conclusion.  Clearly, banks colluding to shave a few basis points off municipal asset returns is fraud.     As the author of the Rolling Stone piece puts it several times, the crime here is that the public did not get the best market rate.  So why is, say, elected officials colluding with public employees unions to artificially raise wages, benefits, and staffing levels above market rates not fraud as well?  In both cases insiders are manipulating the government's procurement and political processes to pay more than the market rates for certain services.

This is Bastiat's "seen and unseen" of the privatization debate.   Yes, the world is unfortunately littered with examples of government procurement fraud.  This is often cited as a reason for maintaining the status quo of continued government management of a diverse range of services.  But what we miss, what is unseen, is that these government services are often run with staffing levels, work rules, productivity expectations, and pay rates that would constitute a scandal if uncovered in a division of a corporation, particularly if the workers were spending a lot of money to make sure the manager handing them this largess was able to keep his job.

Yes, the public lost several basis points on its investments when it did not get the market rate of return from cheating bankers.  But it loses as much as 50% of every tax dollar sent to many state agencies because it does not get market rates (and practices) for state labor.

I Find This Impossible to Understand

Most of you are familiar with the razor and blades strategy:  Give away or sell the razor below cost to ensure years of profitable razor blade sales.  We had a great example of this at AlliedSignal (later Honeywell) Aerospace where we pretty much gave Boeing the brake assemblies for the aircraft plus a free spare plus I think we put some cash in the box as well, all to get decades of guaranteed high price brake replacement business (courtesy in part to government regulation which made is extraordinarily difficult to the point of being impossible for anyone else to produce aftermarket parts).

So what I don't understand is, why is this company proposing to sell only the razors while inevitably leaving the blade sales to someone else:

The UK's biggest bookstore chain has announced that it will start selling Kindles alongside other digital services from Amazon. Waterstones stores will let Kindle owners digitally browse books in-store and link up with special offers, tying into the chain's plans for substantial renovations that would also include dedicated digital book areas and free WiFi.

One buys the books right from the Kindle interface.  I understand the issue that browsing books online is less satisfying than in a book store (but much more convenient), but I am not sure how they are going to make money.  Are Waterstone Kindle's coded to give Waterstones a share of each purchase?  I can't find anything like that in the media reports, but I would certainly demand that at Waterstones.  If not, this is like selling gift certificates for your competitor.

I will confess to being a book store free rider.  I shop airport book stores but if I see something I like, pull out my iPad at the gate and buy it.  Yes, I understand the appeal of physical books and it frankly pulled at me for years.  But having just gone on a trip with 100 pages to read in the third Game of Thrones book, the relief I felt in having both the third and fourth books on my iPad rather than carrying both physically  (think 800 pages or so each) was great.

Where Did Those First Solar Subsidies Go? $32 Million went to their Failed CEO

It would be impossible to trace all the ways taxpayer money ends up in the coffers of solar manufacturers like First Solar.  Most of First Solar's money has been made selling panels in Germany to solar plants that, by law, can rape electricity customers with prices 10-15x higher than the market price for electricity.  First Solar also benefits more directly from direct subsidies, loan guarantees, "retraining" subsidies and even government Ex-Im Bank loans to sell panels to itself.  While First Solar vehemently denies it is a subsidy whore, it is telling that when Germany began to cut its solar feed-in tariffs, First Solar's stock price fell from over $300 to around $20.  Just watch day to day trading of First Solar stock, it does not move on news about its efficiency or productivity, it moves on rumors of changes in government subsidies.

Let's look at one subsidy.  In 2010, the Obama administration gave First Solar a subsidy of $16.3 million, ostensibly to help open a new plant in Ohio.  But it is interesting that this private company, which apparently could only raise the $16.3 million it needed by taking it by force from taxpayers, had plenty of money to pay its CEO.  In the 13 months leading up to its $16.3 million taken from taxpayers, First Solar paid its new CEO $29.85 million!  

Rob Gillette, the ousted CEO of First Solar Inc., earned more than $32 million in compensation from the struggling company for his two years of service, according to a regulatory filing Wednesday.

Gillette came to First Solar from Phoenix-based Honeywell Aerospace in October 2009 and was fired by the Tempe-based solar company's board of directors in October 2011....

Most of his compensation came in the three months of 2009 that he worked, when his total compensation, including salary, bonus, stock and options awards and other perks, reached $16.55 million. In 2010 his total compensation was $13.3 million, and last year he earned $2.46 million, which consisted of $763,000 in base salary and a $1.7 million severance.

Yep, they can't scrape up $16.3 million of their own money for a factory but they can find $30 million to give to an unproven CEO they eventually had to ride out on a rail.

By the way, I don't know Mr. Gillette, but I was once an executive at Honeywell Aerospace for several years.  I can tell you that it's a great place to find an executive who is focused on process to manage large complex organizations in a relatively stable business where manufacturing, logistics, and schmoozing large buyers is important.  It is a terrible, awful place to seek an executive for a fast growing business that needs to rapidly shift business strategies and where grinding through the process gets the wrong answer 12 months too late.

Can You Name a Retailer Who Has Had A Second Act?

Apparently, the nose dive at Best Buy is accelerating.  Watching retail just as a consumer over the last few decades, it seems that whenever a retailer starts going down the drain, they never recover.  Calls are made for more visionary management to reposition the company, but I can't remember any such effort ever working.  The slide may be fast - Circuit City, CompUSA, Borders - or slow - Sears, A&P - but the nose dive never seems to reverse.  The only retailer I can possibly remember really executing a fairly large shift was maybe Gap from just being a Levi's outlet to whatever it is today.   And maybe Radio Shack, which is sort of this zombie you think has been outdated for like three decades but keeps hanging on.

Greatest Corporate Value Proposition Ever

From Tacocopter:

Flying Robots Deliver Tacos To Your Location

If this is an April Fools joke, I am going to cry.