Silly Coke

The Coca-Cola Company has a new version of Diet Coke called "Diet Coke Plus" loaded with vitamins and minerals. Never mind that this version of Diet Coke is sweetened with a blend of aspartame and acesulfame potassium, each 12-ounce serving provides 25% of the daily value for niacin and vitamins B6 and B12, and 15% for zinc and magnesium.

The Coca-Cola Company is on a tear lately with its stock up almost 30% from its 52 week low. New leadership has shaken the company from its doldrums, expanding beyond its core carbonated soft drinks. The company now produces and markets a wide variety of beverages including energy drinks (Full Throttle), juices (Minute Maid and Odwalla), sports drinks ( Powerade), tea and coffee (Haru Green Tea) and bottled water (Dasani and vitaminwater).

The "re-formulation" of the parent company to the flagship Coke brand is being driven by market forces. While carbonated soft drinks still dominate the overall market, the big growth gains are being made by water and energy drinks. In the last year, total carbonated volume dropped by about 1% percent whereas bottled water volume increased by 10% and energy drinks grew by about 50%. Like most everything else in the packaged goods and food/beverage categories these days, growth is being driven by the health and wellness trend. For more on the US beverage market, visit Beverage Daily -- link

Positioning Diet Coke as a "wellness" product is hardly a crime -- certainly less of a stretch than if Absolut Vodka claimed that a screwdriver cocktail is healthy because it is made with orange juice. Positioning Diet Coke Plus as a wellness product though is superfluous if not downright silly. Most Americans eat a nutrient-rich diet and do not risk malnutrition or serious vitamin deficiencies. If you have any doubts about your vitamin B intake, eat more whole grains, avocados, corn, bananas, nuts and dairy. And, if you're not vegetarian, eat lean meat and fish.

While Diet Coke Plus will unlikely cause you harm, it probably won't do you much good either. Next time you want a quick vitamin B boost, leave aside the silly marketing and have a banana with peanut butter and a tall glass of milk.

Trust me, you'll be fine.

Goldman Should Join This Exclusive Club

Goldman Sachs announced last week that its Chief Executive, Lloyd Blankfein, received about $69 million in compensation in 2007 -- the highest compensation ever received by a Wall Street CEO. Mr. Blankfein received $26.8 million in cash and $41.1million in stock and options awards. The Goldman CEO also donated $200,000 of his pay (as a firm requirement) to the newly formed charitable organization, Goldman Sachs Gives.

What should strike you most about the Goldman Sachs announcement is not the size of Mr. Blankfein's pay package but how little he gave to Goldman Sachs Gives. True, Mr. Blankfein undoubtedly gives voluntarily and substantially to other causes in need. But, $200,000 is not a lot of money when one is making $69 million. To be specific, it is less than 3 tenths of a percent of his total pay.


Far from Wall Street are the Twin Cities of Minneapolis and St. Paul. Joe Nocera, in his Saturday New York Times column, reports on the strong legacy of corporate giving in this solidly Midwestern, metropolitan area. link While a number of the Twin Cities' corporate citizens are long gone (Great Northern Railroad and Pillsbury are two that were acquired), others within its corporate ranks continue to flourish. One in particular, Dayton Hudson, successfully re-made itself from a stodgy department store chain into a style-driven, trend-setting retailer, now named Target. Fortunately for the community, when Pillsbury was acquired it was by a local competitor named General Mills.

Target and General Mills are early members of a corporate association entitled the Five Percent Club that was formed back in the 1970's. Members of the "club" agreed to donate five percent of their net operating profits to charity. Today, the association is now known as The Keystone Club and its 214 members agree to donate at least 2% of their net profits to charities and non-profit causes. Amazingly, over half of the companies -- including Target and General Mills -- still donate at the 5 percent level.

The contrast between Target and General Mills on the one hand and Goldman Sachs on the other is striking. Goldman is a financial services juggernaut whose earnings are multiple times higher than Target (a discount retailer) or General Mills (primarily a maker of cereals and packaged foods). In 2006, Goldman earned $9.5 billion in profits versus $2.8 billion for Target and $1.1 billion for General Mills. Yet, Goldman gave away only $20 million through its foundation while Target and General Mills gave $150 million and $82 million, respectively. Goldman gave away less than 1% while Target and General Mills each maintained its 5% commitment.

All three of these companies face significant pressures to perform. While they are each leaders in their industry, intense competitive threats and macro-economic forces can play havoc on their balance sheets and income statements. And as public companies, they must meet the demands from shareholders, Wall Street analysts and investor activists who want profits to grow consistently from quarter to quarter. Yet, the Twin Cities' companies have chosen to meet these threats and demands while maintaining a heavier philanthropic commitment.

Goldman Sachs' commitment to public service and social responsibility is noteworthy and the pride of its culture. Yet, when it comes to ranking corporate philanthropy, the investment firm is nowhere near the top. Here is one final comparison to prove the point. The Goldman Sachs Foundation with over $275 million in net assets gave away about $18 million last year. In contrast, the General Mills Foundation gave slightly more away but with foundation assets of only $57 million. The $20 million it gave away was replenished with an equivalent amount by the company -- on top of the $41 million it gave away in corporate contributions and the $21 million in product donations.

For inspiration to give more, perhaps Mr. Blankfein and his colleagues at Goldman Sachs should look west of its Wall Street competitors – north by northwest to be more precise.

Charity As Gimmick

During December, BMW North America will help make wishes come true with a donation to the Make-A-Wish Foundation for every new vehicle leased or sold at participating dealers. A contribution of $25 will be made to the Make-A-Wish Foundation for every new BMW sold at participating locations from Dec. 1-31.

Wow... how generous of BMW considering that the lowest priced car in their line-up, the 328i Sedan, carries a $32,400 MSRP. BMW is donating less than 1/10 of a percent of the car's MSRP. If you consider the top of the line 760Li sedan and its $122,600 MSRP, then the $25 donation is embarrassingly tiny. If BMW was serious about making a high impact contribution to Make-A-Wish, the company would at least scale its donation to the value of the vehicle. How about $100 for the 328i and $1000 for the 760Li?

BMW is putting to use what is referred to within the marketing trade as an embedded-giving program. The basic idea is that when a consumer buys a product during the promotion period, the company makes an automatic donation in his/her name to a designated charitable organization. While it sounds like a noble idea, rest assured that the promotion is based first and foremost on a marketing premise and less about social responsibility.

Case in point is the Barneys "Have a Green Holiday" catalog I referenced in an earlier post. In the catalog, the World Wildlife Fund is mentioned as a participating charity in the Barneys' holiday promotion. It turns out, as reported by The New York Times, that the World Wildlife Fund was unaware of their participation in the promotion -- oops! link

Mixing charity and commerce is problematic. My suggestion is to take the high road and keep them separate. If you can afford a six figure car, then you shouldn't need prodding from BMW to make a donation to those in need. And if you lead a company as successful as BMW, then you should not have to rely on promotion results to justify making a high impact, charitable donation.

Charity is best felt from the heart rather than analyzed by the brain.

Attack Of The Killer Santa

Beware of the 12 foot high inflatable Santas tethered on the front lawn of your neighbors home. Not just the Santa -- in many neighborhoods you will also find the inflatable reindeer, snowman, Christmas tree, manger or snow globe. I just don't get it. They are billboard ugly. Why would anyone showcase their house in this way?

Don't get me wrong. I'm all for stringing lights on a house or decorations here and there. I also enjoy the hobbyists who spend all fall constructing their Christmas light extravaganzas. But these inflatable displays are all wrong. They have nothing to do with tradition, an eye for display or effort -- it's simply plug in, tie down and inflate. Instant Christmas!

These inflatable decorations are not defined by economic strata. My suburban New Jersey town is blessed with a diverse make-up and these inflatables are on front lawns all across town -- gracing the homes of the rich as well as the working class.

Last night, I saw a giant Santa in front of a multi-million dollar, center hall colonial mansion. The inflatable seemed to be a story and a half high. The scale of the house and the size of the inflatable only made matters worse. More "Attack Of The Killer Santa" than "Deck The Halls..."

I can only imagine what will be under this family's Christmas tree on December 25th. Right now, I'd guess a $12,735 crocodile leather Dopp Kit from Dolce & Gabbana?

What Me Worry?

It looks like Madison Square Garden and the New York Nicks are being run by Alfred E. Neuman.

Stay on top of the news these days and you are likely to encounter stories of fallen idols, dethroned chieftains and corporate big wigs that have lost their job. Michael Vicks of The Atlanta Falcons -- sentenced to 23 months and required to return $20 million in payments for his involvement in in a dog fighting ring. Conrad Black -- who once presided over the 3rd largest newspaper chain -- sentenced to 6 1/2 years in prison for his convictions on fraud and obstruction of justice charges. On Wall Street, Charles Prince of Citigroup and Stanley O'Neal of Merrill Lynch both lost their CEO positions due to huge losses related to the subprime mortgage meltdown.

But life goes on at the Knicks. The team is securely in last place in their NBA conference with a 6 and 14 win-loss record. And, the team has dragged its fans through the mud with its recent conviction on charges of sexual harassment. The Garden settles charges this week -- just ahead of a judge's ruling on compensatory damages -- paying $11.5 million to the victim, a former marketing executive.

One NY radio DJ remarked yesterday -- if I cost my company $11.5 million and my ratings were in last place, I would be off the air in a matter of days if not hours. But this logic does not apply to the leadership of Madison Square Garden -- the Knicks' parent organization. Coach Isiah Thomas seems secure in his job due to the continued support and patronage of James Dolan, Chairman of the Garden.

Mr. Dolan lacks the business acumen of his father, legendary cable television pioneer, Chuck Dolan. And its clear that moral fortitude is not Junior's strong suit. It doesn't look like the embarrassment caused to his family will prompt him to take a new leadership direction either. With a tight ownership grip on The Garden, James Dolan puts his interests way ahead of any other constituency.

Answering To A Higher Authority...

Like the classic tag line for Hebrew National hot dogs, more and more consumers today are expecting the brands they purchase to “answer to a higher authority.”

For these values-driven consumers, quality, design and price are still important but no longer sufficient criteria for purchase. They expect product ingredients to pose no potential harm to humans, animals or the environment. They also want to know how the Company behind the product treats its workers; and whether a portion of its profits are directed to doing social good.

Not all brands for sale meet these criteria. The very best of these brands might be referred to as “good karma” brands. A “good karma” brand should satisfy consumer needs in a manner that promotes the wellness of people, the environment, the business community and society at large.

To assess a brand's karma, here are five general factors to consider:

• Safety of product ingredients
• Equity, fairness and safety of the supply chain
• Integrity of product and marketing claims
• Service and overall customer experience
• Price and value relative to profit
• Corporate citizenship and social responsibility

Now comes the challenging part. Don't expect a "Good Karma" label on the packaging just yet. And as you stand in the aisle evaluating your purchase, do not expect a binary outcome as you weigh these factors. Products will most likely fall within a range of acceptability. Unfortunately, the factors often interplay with one another compounding the confusion.

For example, nutritionists suggest eating a variety of fresh fruits and vegetables to maintain a healthy diet. But, how do you accomplish this if you are also trying to eat local? Only the fortunate few live in tropical paradise with a diverse mix of fresh produce available all year long.

Or take the example of eating organic foods. How do you evaluate the net karma impact of organic, fair trade bananas from Central America, given the CO2 emissions of long haul air freight? It is a better choice than less expensive, the non-organic/non-fair trade bananas, but the carbon footprint is likely the same.

My advice is to keep these criteria in mind, do your own informal research and make comparisons across products. The more informed you are, the better the chance that you will make purchases that you feel good about. And if you make a mistake and buy the wrong product, don't beat yourself up. Instead, use the experience to make a more informed choice next time. Over time, more and more of the products and services you use will satisfy your broader concerns for life, your community and the planet.

Why Is This Man Smiling?

In one of the largest executive-pay givebacks in history, former UnitedHealth Group Inc. Chief Executive William McGuire has agreed to forfeit about $620 million in stock-option gains and retirement pay to settle civil and federal-government claims related to stock-option backdating. Stock-option backdating refers to the illegal practice of "backdating" stock option agreements so that options are priced at a historical low price rather than the current price, generating higher profits for the option holder.


Under the agreement, other key executives agreed to return ill gotten stock option gains as well bringing the total value of the settlement to almost $890 million. McGuire's payment dwarfs the $500 million junk bond king Michael Milken returned in the 1980's. McGuire still faces criminal charges.

So, why is he smiling? He still retains about 24 million stock options that currently could be cashed in for a gain of roughly $800 million, on top of about $530 million in pay he pocketed while running UnitedHealth from 1991 to 2006 -- obviously, the public defender will not be called upon to handle his criminal case.

Why would McGuire cheat the system to make $600 million, when he already was making more than a billion dollars?

This level of greed is in a whole different league than the six-figure executive who cheats on his expenses by taking his wife out to dinner and pretending she is a client. Or, the $50,000 bookkeeper who embezzles a $1,000 a month to cover her mortgage expense. I find McGuire's case disturbing. A billion dollars should be enough to keep anyone on the right side of the law. Obviously not.

Ho Ho Ho! Holier And Richer Than Thou!

Ultra-exclusive, fashion retailer Barney's New York released its "Have A Green Holiday" catalog this week. link Naturally, the papers and printers used in the catalog are all certified to Forest Stewardship Council standards! Here are my favorite picks.

First up -- A Goyard "St. Louis" shoppers tote at the lofty price of $1065 for those of you for whom the LL Bean extra large canvas tote @ $30 is a bit too pedestrian. The Goyard bag is made of unique 100% recyclable canvas and is made of all natural ingredients without plastic or petroleum. And while you are at it, you might as well spring for the $310 custom monogramming!

Second -- a very special collection of women's accessories including an alligator skin wallet and card case, assuming your Humane Society membership does not extend to those farm raised Florida gators...

Third -- Salvatore Ferragamo neck ties. Sorry, the silk worms are not free range. Do buy a tie anyway and a donation will be made to the Natural Resources Defense Council.

And my favorite. A "billionaire's boys club" made-to-order bike @ $3950. The perfect gift for those who want to reduce their carbon footprint but dread the thought of taking public transportation...

This holiday season, spend your green to be green!

How long should a consumer product last?

Yesterday, I purchased my third HP printer in just over 36 months. Buying the first new printer was my choice based on an upgrade in technology. I decided to rid my home office of a separate printer and fax machine and consolidate into a single unit that prints, copies, faxes and scans. This printer lasted just about two years until it died a quick death after an electrical storm (so much for my surge protector). The replacement printer died after a year when the ink cartridge mechanism jammed and broke off.

In both cases, my manufacturer's warranty had expired and I was told that I would be better off buying a new printer rather than fixing the old one. This recommendation considered the cost of shipping, handling, service and parts; and the time I would be without a printer. On my trip back from Staples yesterday, I got to thinking about the expected life of a consumer product. Certainly, I had hoped that a printer would last a number of years rather than months.

Often, expectations about the useful life of a product are built into the customer mindset only to be reinforced by marketing messages. Price is largely an irrelevant matter. For example, single use products range from the inexpensive -- Gillette disposal razors (@ $3.50 for a pack of 3) to the absurdly expensive -- a bottle of 1996 Dom Perignon Rose for $349.99. Likewise, there are inexpensive products that last almost forever -- a Kitchen Aid can opener for $9.99. And, there are many expensive products with long, useful lives -- the 2008 S600 sedan from Mercedes Benz, which has a base price of $144,975. For a more utilitarian, automotive example, remember the Volvo ads showcasing owners who had driven their cars for hundred of thousands of miles?

Let's leave aside the factor of technological obsolescence -- consumers have learned this will happen particularly with technology gadgets. In this case, manufacturers argue that consumers are getting direct benefits from upgrading to new models -- so at least there is a payoff. Also leave aside fashion items. Those who purchase a $2,000 suit from Armani Collezioni recognize that the appeal of the suit's design is short lived.

How long should a printer realistically last? Or, an iPod? Or, a cell phone? Products that cost between $100 and $1,000 are a no man's land for consumers especially if the life expectancy is hard to guage or the product is prone to break or fail. In essense, products like this are not expensive enough to repair but still cost a sufficient amount to make you say ouch!

In this $100 - $1,000 price range, consumers are often told that the expense and hassle of repairing s product are just not worth it -- you are better off buying a new one. For my money, this is an unacceptable consumer experience and appears to be built into the manufacturer's business model. Once or twice burned, you are convinced to buy the extended warranty. You actually pay more for the printer up front for the peace of mind that if it dies a premature death, you can have it easily replaced.

But buying the extended service policy is optional and many customers worry that they are being ripped off if they buy it. Are we really equipped analytically to calculate the risk of forgoing the extended warranty especially if we are prone to suspicions about the manufacturer? In my case, I bought the 3 year extended warranty on the new HP printer for about $95. A far simpler model in my view would be to simply raise the price of all HP printers by half this amount -- say $50 -- and then offer a LL Bean like service policy to all -- if for any reason, your printer stops working, we will fix it for free, no questions asked.

This works to every one's benefit. The consumer saves money in the long run and has a happier customer experience. And the model benefits HP as well -- not only is consumer loyalty enhanced but this approach provides the discipline to develop and produce high quality, low maintenance products. And that's what HP should be all about.

Everything just might be bad for you!

My recent posts have suggested a certain optimism for the greening of the American consumer products business. Smart marketers such as Toyota, Target and even bleach maker Clorox are transforming their product lines to meet the expectations of health conscious consumers.

These companies are demonstrating a genuine concern for the health of living things and the planet. They are also motivated by fear -- a fear of losing market share if they do not meet the more demanding needs of health conscious consumers. Whatever the motivation, I predict continued progress towards a healthier set of products lining our supermarket shelves and mass market displays. Be on the watch for product reformulations, new product introductions, acquisitions and in limited cases, discontinued or divested products that don't make the grade.

This optimism is now challenged by a new book by Mark Schapiro, the Editorial Director of the Center for Investigating reporting. The book is called "Exposed: The Toxic Chemistry of Everyday Products and What's at Stake for American Power" (Chelsea Green, $22.95). link

In the book, Schapiro contends that the American public comes in daily contact with countless toxic chemicals and harmful substances used widely in our everyday products. Carcinogenic, gene mutating and birth-defect causing substances can be found in everything from cosmetics and personal care products to consumer electronics and computers. And there are plenty of toxins in toys, particularly plastic toys. If Mr. Schapiro is correct, the cynic may be right after all -- these days just about everything is bad for you...

Schapiro's further argues that European consumers have less to worry about in this regard. That is because the European Union has more stringent legislation and tougher regulations for consumer products manufacturers than the U.S. And, the EU is quicker to ban potentially bad substances even if the evidence is still forthcoming. How could this be? Are EU countries in fact environmentally safer than the U.S.?

The answer according to Schapiro is yes and for two solid reasons. First, political contributions are banned in Europe so the lobbying effort against legislation is completely non-effective (unlike the U.S. where lawmakers accept donations from lobbyists and companies and are then beholden to them). So, the EU regulators feel little need to protect company interests if consumer safety is in question. Second, European governments pay for health care for its citizens and are therefore more far sighted about potentially harmful factors in the environment. The governments have a vested interest in reducing the cost of health care and mitigating environmental factors in illness.

Interestingly, because the EU as a whole is a collectively larger economy than the U.S., companies (including U.S. based multinationals) have no choice but to follow the EU regulations for fear of having their products banned from the market. It is hard to believe this but some companies opt to produce two sets of products according to Schapiro -- the original formulation for U.S. consumers and a healthier version for EU consumers! This happens regularly in the case of toys (by the way, China produces 85% of the world's toy supply). Author Schapiro did an enlightening interview with NPR if you would like to listen to it or read the transcript. link



Makes you feel comfortable doesn't it? Well, here are a two thoughts to make you feel a little better.

First, even if government regulation is weaker in the U.S., companies will continue to innovate in an effort to strengthen the wellness claims of their product lines -- the U.S. market moves faster on market competition and consumer demand curves than it does on regulation.

And second, having two versions of the same product is not a recipe for long-term success. Large multi-nationals such as P&G standardize product, packaging and manufacturing process on a global basis -- because it makes economic sense to. And maybe I am a bit naive, but I believe companies would choose the healthier version of a product every time -- why risk damage to the brand?

And in the meantime, hold your breath when you are riding in your car. It turns out that a toxic chemical in the dashboard degrades over time and diffuses into the circulating air...

Values In Aisle Six

I reached under the kitchen sink on Friday to grab dishwashing liquid to take care of a couple of leftover wine glasses from Thanksgiving. I was a surprised to find a bottle of Seventh Generation rather than Palmolive or Dawn.

Seventh Generation, Inc. is a company, which makes household and personal care products that are healthy and safe for the environment. It was founded in Vermont almost 20 years ago -- way before environmental sustainability was fashionable in the suburbs. The name of the company comes from an Iroquois belief that "in our every deliberation, we must consider the impact of our decisions on the next seven generations".

I wasn’t surprised that my wife embeds values in her household shopping habits – she is a karma capitalist at heart too. Rather, my surprise had more to do with Seventh Generation's limited distribution. Historically, the brand was only available by mail order or in health food stores and Whole Foods. Now, it seems that Seventh Generation brands are available at Target (where my wife found the dishwashing liquid) and supermarkets such as Shoprite.

Do you know what the biggest threat to Whole Foods is? It is certainly not a slow down in the general wellness/earth-friendly marketplace – especially with categories such as organic foods growing at 15% a year. The biggest threat to Whole Foods is that it loses its point of differentiation versus the supermarkets and chains, which are more conveniently located in your town.

Mass retailers such as Wal-Mart, Target, Kroger and so on are eyeing Whole Foods’ success and hoping to copy key components of its business model. That’s what happened to Starbucks when McDonalds, Dunkin Donuts and just about every neighborhood café improved its coffee service to compete. Keeping abreast of key growth segments and copying successful competitors is a matter of staying in business.

Let's get back to Seventh Generation. Here is a company that quietly built its franchise over the last 20 years. Visit their website to find our more about the company, their focus on sustainability and full range of their products. link

This is a quiet company no more. Last year, revenues grow by 28% and it moved into a fancy new headquarters – good for them. Like most commercial enterprises, the owners of Seventh Generation want and need to grow – which expanding their product line and broadening their distribution are essential moves. This is not only about growth – it is about survival. Just as Target and Kroger’s are watching Whole Foods, Procter & Gamble, Colgate and Unilever are watching Seventh Generation. And if these packaged good giants can’t reinvent their product lines fast enough, they’ll transform them through acquisition. This is why Colgate purchased Tom's of Maine -- a natural ingredients, personal care products company.

Don’t be put off if large companies are hitching a ride on the latest trend – the LOHAS Market, which stands for Lifestyles of Health And Sustainability and represents 50 million adult consumers and close to $300 billion in spending. This is great news for the values-oriented consumer. The net result for you will be more wellness and earth friendly brands to choose from at lower prices and available in more places.

And, you need not be concerned about the prospects for Seventh Generation. The company seems to be superbly managed and may look to go public to raise expansion funds (why not, if Lululemon is worth billions!) or be acquired like Tom’s of Maine or Burt’s Bees. In any scenario, this will no longer be a sleepy Vermont based company.

That’s good news for the earth and all of us inhabiting it too.

Word!

No, not the hipsters' phrase.... I mean your word.

Do you want to conduct business in an ethical manner? Start with this -- never go back on your word. And, in today's world of changing environments and conflicting demands, consistently keeping your word will be a remarkable achievement. Not only will it enable people to trust and rely on you, it will help build unshakable team loyalty that holds together through up and down business cycles.

Just keep in mind that this takes considerable effort -- easier said than done.

The best boss I ever worked for never went back on his word. In the ten years I worked for him, his word was a guarantee. This particular boss also had an unusual method of saying “no” -- he would simply not say "yes", rather than vocalizing "no". While in some organizations this might breed frustration, in this case it actually created a high level of motivation, focused on developing new ideas and ventures. If you didn't hear "no", you kept coming back with stronger arguments and answers to his objections. The process was also a good test of your commitment to an idea. If you didn't come back at least two or three times how committed to the new idea were you? And, once you heard "yes" you knew you had his backing all the way.

This gentleman was an accidental business executive. Trained as a computer scientist, he turned around a small, money losing division and then steadily rose up the ladder. He catapulted over more polished and "sophisticated" executives surprising many with his unassuming and publicity shy manner. During his tenure, he delivered more than 40 consecutive quarters of record earnings.

In contrast, the worst boss I ever worked for kept his word only when conditions made it easy for him to do so. For him, going against his word was a strategy for dealing with tough times. Once, when we recognized that we had too much manufacturing capacity in Chicago, he ordered me to stop making lease payments on a rental facility. His logic was, "After a couple of months, the landlord might threaten to sue but eventually he’ll settle to avoid the legal expense. In the meantime, we will improve our cash flow and reduce our space commitments."

I just couldn't do it. I continued to pay the landlord at the risk of being fired. I had given the landlord my word.

After a few years, our company continued to be in dire straits financially. I offered to resign as a way of reducing overhead. He replied that this would not be good for the company in the long run as he viewed me as his choice to succeed him as CEO. Only a month later, he fired me, adding that he too was being forced out by the board. This turned out not to be true -- it was simply an easier way for him to break the news to me. Ultimately, getting fired was the best thing that could have ever happened to me.

In contrast to the high-integrity leader I mentioned first, this boss ran his company into the ground. Once publicly traded on the New York Stock Exchange, it repeatedly recorded losses for close to twenty years. Eventually, it was taken private and the new owners fired him. And, to top it off, he was later convicted of securities fraud and served time in a Federal prison. Word!

Give Thanks...

Be grateful if you have what you need.
And, be generous if you have more.
For others with far less than you,
live without what they desperately need.

Happy Thanksgiving from the Karma Capitalist.

WAL-MART: Great White Shark or T-Rex?

"There is a creature alive today who has survived millions of years of evolution without change, without passion, and without logic. It lives to kill. A mindless eating machine, it will attack and devour anything. It is as though God created the devil and gave him jaws."

- From the preview for 'JAWS' - 1975


For many people, Wal-Mart tops the list of feared and hated corporate giants. The retailer swept across the country during the last 50 years, devouring countless main street merchants and leaving in its wake a list of corporate offenses related to unfair labor policies, poor environmental practices, and ruthless tactics against competitors and suppliers alike.

Starting with one location -- a franchised Ben Franklin variety store in Arkansas, Sam Walton and his successors built what is today the largest retailing operation in the world. There are 5,000 Wal-Mart stores (in a variety of formats) and the company has 1.9 million full time employees -- that's right, 1.9 million employees.

With revenues of just over $300 billion, Wal-Mart is one and a half times larger than its next biggest 13 competitors combined. This list includes storied retailers such as Sears as well as trend setting newcomers like Target. In fact, Wal-Mart is six times larger than Target. Today, Wal-Mart stands at number two on the FORTUNE 500 list just behind Exxon Mobil.

There is a well organized and financed activist movement against Wal-Mart. One example is the organization -- "Wake Up Wal-Mart" -- which is backed by The United Food and Commercial Workers International Union. Wake Up Wal-Mart claims over 500,000 members (union card carriers perhaps?) and has a well-designed, multi-functional website prompting you to sign up, spread the word, adopt a Wal-Mart, donate and take action. link

Or, check out Wall-Mart Watch, which is a joint project of The Center for Community & Corporate Ethics and its advocacy arm, Five Stones. The Center is devoted to studying the impact of large corporations on society. link

Wal-Mart is clearly not invincible. The effort against Wal-Mart includes economic research, academic studies, film projects and other union movements. A growing number of communities have successfully rallied and prohibited Wal-Mart from opening. The company has repeatedly failed, attempting to expand internationally. While the company has long been noted for its extremely efficient supply chain model, 70% of its products are sourced in China, creating a new level of vulnerability.

Wal-Mart is a remarkable retailing achievement. Its low prices and breadth of inventory provide a measure of consumer value without competitive parity. And as such, it has many loyal consumers and business advocates. However, to grow -- which all public companies must do -- the Wal-Mart model must adapt. The social environment companies operate in today will not allow Wal-Mart to operate like it has in the past.

Will Wal-Mart face extinction like the once feared T-Rex? Or, will the retailer be destroyed like the man-eating Great White in Jaws? I doubt it. Rather, watch for Wal-Mart to strengthen its ethical values voluntarily and integrate these into its business model. Imagine low prices, a wide selection of merchandise AND a values driven approach to people, society and the planet -- that's an unbeatable business model for Wal-Mart over the next 50 years.

Lulu-lied!

The stock of Lululemon, the yoga-inspired, apparel company, has been on a tear since its summer IPO. While shares of the Canadian company have traded as high as $60, they have since settled to the low $40's. Lululemon still sports a $2.8 billion market capitalization -- not bad for a company with revenues of only $150 million and profits of just $7.7 million.

Enthusiasm for its brand imagery, unique fabrics and apparel design has been the key driver behind the company's rapid rise. An aggressive retail strategy is set to capitalize on the young company's loyal consumer following -- an expansion plan reminiscent of Starbucks in its early years.

Now, management is facing its first PR crisis and showing the strains of getting too much too soon. The focal point is a popular Lululemon clothing line called VitaSea, made from a cotton fabric with a one-quarter seaweed composition. Earlier this week, the New York Times reported that tests performed by an independent laboratory could find no trace of seaweed in the fabric. Founder and Chairman, Dennis Wilson, did not dispute the laboratory findings. link

Let's presume Lululemon did not intentionally mislead the public. Rather, this is most likely a case of sloppy management. A company spokesman admitted as much offering the excuse that Lululemon relied on its German fabric supplier, Smartfiber, to verify the VitaSea fabric composition and associated claims. This would be acceptable if it was not for the fact that VitaSea promotes revolutionary wellness benefits; "VitaSea reduces stress and provides anti-inflammatory, anti-bacterial, hydrating and detoxifying benefits". That's too much promotional copy to accept without demanding substantiation.

Don't short Lululemon stock just yet. Consumers seem unfazed by the controversy and the stock faced little downward pressure since the Times article. On the other hand, I would not load up your 401K with the stock either. Any company with a P/E ratio of 265 ought to have substance behind the hype to sustain its financial momentum. In comparison, public stocks trade at a P/E ratio of about 20 on average, indicating that the market supports a share price of 20 times its earnings. The fact that Lululemon trades at about 13 times greater than the average shows just how much Lululemon hype you need to believe before you should buy the stock.

Lululemon should pay close attention to its cultural "manifesto" to use its own words -- "That which matters the least should never give way to that which matters the most." Right now, growth and expansion matter the least and integrity matters the most.

Email Service Now Available

Good news! A number of readers have asked me about subscribing to Karma Capitalist so that it is automatically emailed to them. I am pleased to announce that this feature has been added -- please see the FeedBlitz box in the top right corner. Subscribing is as easy as 1-2-3.

In developments of a grander scale, I am pleased to report that the parent company of The Karma Capitalist -- Moon Day Media -- has completed its initial round of financing. If you would like to learn more about our company, you will find a presentation and a sampling of our development work: link

The files are large and take a while to load, but they are well worth the wait (in my opinion). Thank you!

Reinventing Bleach

The Clorox Company says it wants to transform itself into a company focused on health, wellness and environmental sustainability. My first impression was scepticism believing this is another attempt by a major company to latch onto a marketing trend. It turns out I was wrong to be sceptical.

Chief Executive Don Knauss plans a major push towards personal products with the first step being the purchase of lip balm and lotion maker Burt's Bees for $925 million. Knauss is also launching a line of natural cleaners under the label Green Works. Green Works cleaners are made from 99 percent natural plant-based ingredients and perform as well as conventional cleaners. And Green Works bottles are 100 percent recyclable.

These are exciting developments for a company that has not launched a new brand in 20 years. But how does Clorox intend on transforming its current product line up to fit this new image? How will Knauss make such major revenue producers as Clorox Bleach and Glad plastic trash bags environmentally friendly?

Regarding Clorox bleach, it turns out that the brand's least earth-friendly aspect is not the liquid in the bottle but the bottle itself. Much to my surprise, Clorox liquid bleach breaks down quickly once down the drain, primarily into salt and water. The same cannot be said for plastic trash bags -- which will never break down no matter how long they sit in the landfill. To credit Clorox though, Glad bags have been re-engineered to use less plastic and the plastic that is used in manufacturing is entirely recycled. The ultimate environmental solution for plastic trash bags has more to do with consumers (who should use less or none of them) than Clorox.

While no company is perfect, Clorox has a solid track record in environmental practices. Maybe transforming this 100 year old company will not be so difficult after all. link

Gratuitous Philanthropy

Al Gore made news today by joining forces with noted Silicon Valley venture capital firm, Kleiner Perkins link to spearhead investments in environmentally friendly energy sources and clean technology. link

The 45th Vice President of The United States is teaming with one of the most successful venture capitalist firms as a partner with the likes of John Doerr, who was behind Netscape and Google to name a few of his stellar hits.

Never shy about making headlines and leveraging the press to tell his story, Gore also announced that he would be donating his salary to the Alliance for Climate Protection -- the non-partisan foundation he chairs that focuses on the climate crisis. Unfortunately for the foundation, however, Gore will be keeping for himself the options and equity stakes he receives from his venture investments -- and this is where the real money is made in venture capital.

Don't get me wrong. I love what Al Gore has done to promote the dangers of global warming and I certainly wish he and not George W was in the White House. And I am all for making money AND doing good. But this donation is more about making headlines than making a difference.

Running And Spiritual Growth -- Part II

My friend Tom read my recent post about A-ROD and suggested I do a follow up piece on A-ROD's meditation practice, which has apparently turbocharged his baseball talents even further. Unfortunately, despite visiting the superstar's web page and doing a variety of Google searches, I could find nothing on the subject. My searches did reveal though that on the same day that A-ROD opted out of his Yankees' contract, 1960's legend, Donovan, announced the creation of a meditation center in Scotland. A-ROD is linked to meditation after all.

Google also led me to a wonderful interview with the recently departed Sri Chimnoy who built an entire spiritual following based on the dual tenets of meditation and endurance sports such as long distance running. Sri Chimnoy believed that physical feats such as marathons or power lifting were conduits to spiritual development -- somewhat contradicting the premise of my last post. Unfortunately, since Sri Chimnoy is no longer with us in the physical form, I am unable to ask him this question directly.

In that earlier post, I commented that working hard and running long distance were doing very little for my spiritual growth. I'll leave it to you to decide if my views coincide or conflict with those of Sri Chimnoy. link

And for more on the death of Sri Chimnoy, please visit the October 17Th entry of the hugely popular weblog -- Souljerky, produced by my dear partner, Spiros. link

Raise Your Arms and Bend Backwards

Yoga took me off the traditional career track. For me, the daily practice of yoga muted my raw ambition and gave me a broader sense of what I really wanted to accomplish in life.

For decades, I focused on "achievement" -- nothing unusual for a Harvard MBA. During this time, I was also an avid runner. And my running paralleled by career. Just as I pushed myself to run marathons at a faster pace, I pushed myself higher up the corporate ladder. Until I realized I could not sustain this pace over a lifetime. And that's when I discovered yoga.

The frame of reference for most business people is onward and upward. And over time you become less flexible both physically and emotionally. And this is not helped by long hours at work behind a desk. Business people are not geared to bend in all directions. And, this is damaging in the long run.

I am not suggesting you quit your job or derail your career aspirations. I continue to explore new growth opportunities and recently joined a new media start up. I am suggesting though that you find an activity that complements this mad rush forward. You'll find that twisting and bending backwards (even if only figuratively) provides many benefits, especially when everyone else around you seems to be racing forward with blinders on.

A little bending and twisting will make you more reflective and thoughtful. And, the added flexibility will enable you to adapt to the changing demands placed on you. At the very least, you will reduce your risk of back injury, the next time you bend over to pick up something. That's what a little yoga can do for you. And just maybe, it can do a whole lot more.

Sequential Philanthrophy

About 18 months ago, Warren Buffet made big news with the announcement of his $30.7 billion pledge to the Bill and Melinda Gates Foundation. At the time, this was estimated to be about 85% of his fortune.

In the event you have been living on Mars, Bill Gates (with $56 billion) and Warren Buffet (with $52 billion) are the 3rd and 4th richest people in the world. The Bill and Melinda Gates Foundation was started by the Microsoft founder with his wife in 2000 and now has an endowment of $34.6 billion.

Bill Gates and Warren Buffet each made an enormous sum of money over the course of their careers and now are beginning to give most of it away. This is a generous, noble and rational approach to philanthropy -- wait until you are older and have more money than you and your heirs can spend, and then give most of it away. And if you are Bill Gates, who for most of his life was viewed as the ruthless brain power behind the Microsoft monopoly, it is a wonderful way to redefine his legacy.

Gates and Buffet are engaging in what I will refer to as sequential philanthropy. First make a significant amount of money, and then give it away – in such a way as to not cause much personal hardship to you during your lifetime. There are other ways to give -- ways which involve much more personal sacrifice.

Let me give you an example. Over the weekend, I met a man in his 50’s who has volunteered for the Special Olympics for thirty years. He has been a year-round volunteer for most of those years and has worked on a daily basis for extended periods of time. He coordinates regional training activities and officiates at competitive events. His wife is a volunteer too and now that their children are grown, married and out on their own, they can travel together to Special Olympic events and meetings around the world.

I asked this gentleman if he had a special needs child or loved one, who instigated his volunteerism with the Special Olympics. He said he did not. I asked him if he had made his money very early in his career and chose to spend most of his adulthood “giving back.” He said he had not and that even today he holds down a full time job to pay the bills. I asked him if Special Olympics ever employed him during that 30-year period. He answered that he has given time and energy freely and has never been on the organization’s payroll.

This man has given an Olympic-sized donation of time and energy to an organization that serves people in need. He gave up opportunities to spend time with his family and perhaps make his own millions (or billions) had he channeled his energies in an entrepreneurial direction. His donation was not sequential – it has been continuous. While he may not make headlines or cure world hunger, this man has made a far bigger philanthropic sacrifice than either Gates or Buffet. There are many others like him who contribute in a quiet, sustained way.

If you want to support this gentleman, who asked to remain anonymous, you can visit the Special Olympics website and get involved yourself – or give a donation. link In any event, don’t wait until you’ve made your money or are too old to spend it—start helping others right now.

The Soul of Capitalism

Our good friend, Shreedevi Thacker, brought to our attention this incredible interview with John Bogle conducted by Bill Moyers for PBS. And if for some reason, you cannot watch the video, do take the time to read the transcript. link

As Shreedevi notes, Bogle does not mince words when speaking about what is driving capitalism today and the impact that this is having on society. In Bogle's view, the productive system (which makes things) adds value whereas the financial system (which provides the money to help companies makes things) subtracts it. In Bogle's view this is not inherently wrong -- just way out of balance.

Today, the economy is driven largely by the financial system and the bankers, mutual fund managers, hedge funds and CEO's who profit from it. Financial companies now make more money than agricultural companies; and energy companies; and technology companies; and manufacturing companies; and so on. The 25 highest paid hedge fund managers each made more than $129 million last year.

Bogle, the author of "The Soul of Capitalism" is no mere social critic or academician. He is the founder and retired CEO of The Vanguard Group. Under his leadership, the company grew to be the second largest mutual fund company in the world. His awards and distinctions include being named as one of the "world’s 100 most powerful and influential people" by Time magazine and one of the investment industry’s four "Giants of the 20th Century" by Fortune magazine.

How A-ROD differs from Tiger

Yankees third baseman Alex Rodriguez opted out of the final three years on his 10-year, $252 million contract.

The announcement was made during the final game of the World Series, leading many to criticize A-ROD and his agent, Scott Boras for stealing the show from the Boston Red Sox. Boras apparently wants to score a $300 million contract for his super star client. The Wall Street Journal got into the act and suggested that A-ROD accept a form of deferred compensation convertible into a minority ownership position in the new team that signs him. Sam Zell, the new owner of the Chicago Cubs, would be a good candidate to do such an innovative deal. link

Now, let's turn to another superstar pro athlete -- Tiger Woods. ESPN once estimated that Tiger's earning potential over the course of his career is over $6 billion -- that's right, $6 billion from PGA and worldwide tournament winnings, appearance fees and endorsements. link

So, why is everyone up in arms about the auction of A-ROD's talent to the highest bidder, when someone like Tiger stands to earn even more? One of the reasons is the perception that A-ROD's demands are driven by his ego as much as his talent. And unfortunately, A-ROD selected a team sport like baseball rather than an indivudal sport like Tiger. When push comes to shove, an ego driven star might optimize his personal benefit over what is good for the team overall. And that is why many Yankees fans are saying, "Good riddance to Alex."

Ego gets in the way in many workplace situations beyond sports. Take the example of Stanley O'Neal, who recently was forced to retire from Merrill Lynch with an exit package worth around $160 million. The press reports indicate that O'Neal is the latest victim of the Wall Street mortgage crisis. Merrill Lynch incurred $8.4 billion in mortgage write-downs in the latest quarter and O'Neal also made unauthorized merger overtures to Wachovia. The write-downs and talks with Wachovia alone did not cost O'Neal his job. O'Neal is widely known as a ruthless, autocratic leader who frequently forced out subordinates and disregarded the need for building an effective team around him. In the world of Wall Street, O'Neal has more in common with A-ROD than Tiger. Look for his next job to be more of an individual sport like private equity.

Enhancing Shareholder Value Through Good Works

In case you missed the article in Saturday's Weekend Edition of The Wall Street Journal, Herb Greenberg did a nice story on how companies can enhance their shareholder value through good works.
link

Research on the subject is emerging yet still far from conclusive. One mutual fund company, Dover Management, studied the relationship between stock performance and philanthropy and demonstrated that companies with strong operating performance and a history of giving back, outperformed the broader S&P 500 index. PepsiCo, Johnson & Johnson and Kimberly Clark are Dover favorites.

However, solid operating performance is an essential ingredient in this mix as it provides the financial means to give back. Often, companies in trouble or unable to meet their financial targets, are the first to cut discretionary expenditures such as philanthropy.

While Dover's Responsibility Fund has delivered a healthy 22% gain since its inception in 2005, it has lagged the S&P 500 Index which is up 27%. You might want to consider giving up the extra 5 points -- a 22% gain is not too shabby -- for the peace of mind that your investment dollars are being directed to companies who share your interest in values, good works and philanthropy. To investigate setting up an account with Dover Management, go to link

Monthly Round Up

Here are a few notable updates from entries published earlier:

September 6 -- "Is Apple Evil?"

Apple continues to post blockbuster results across all of its product lines taking full advantage of back-to-school MAC sales and higher demand for the iPhone following the price cut. The stock is on a tear -- having more than doubled this year. This is great news for shareholders but it is still "buyers beware" on the consumer side. Like most "must have" fashion items, price, service and reliability should be secondary considerations if you shop at the Apple store. link

September 19 -- "L.L. Bean -- Guaranteed Good Karma"

I saluted L.L. Bean for its unconditional consumer guarantee. Return any item, at any time and for any reason. Now, just ahead of the holidays, the company announced free shipping with no minimum order. More good karma coming your way.
link

October 4 -- "If I were on the Comp Committee"

Using the example of Angelo Mozilo, CEO of Countrywide, I offered a solution to the problem of executives exercising stock options and reaping unwarranted profit ahead of bad news. The concept is to use a 3 year period to determine the exercise sale price for any exercised option. If the stock goes up, the executive shares the upside. But if the stock goes down, the executive is unable to profit ahead of the bad news. Right now, executives can buy and sell options instantaneously, locking-in their profit. This just doesn't seem right. The SEC has not adopted this rule but it is in fact conducting an informal investigation into Mozilo's stock sales. link

October 8 -- "Wired and Wonderful"

I offered an alternative to how cell phones could be marketed to take the sting out of consumer purchases -- separate the sale of phones from the sale of service contracts. The esteemed WSJ columnist Walter S. Mossberg offered up the same opinion in the October 22 edition of The Journal Report on Technology. Thank you Walter for echoing my point of view. link

Global Warming: Reality TV, Print and Radio

The national news media is awash with stories connected to the global warming phenomenon. Not just left-leaning New York Times -- even the venerable Wall Street Journal is getting into the act. In the last 7 days, I have watched, heard and read the following:

Out of control fires as large as 100,000 acres are now routine and threaten our national forests: CBS 60 minutes, October 21 link

Canadian agriculture adapts to warmer climates and begins to grow world class wines: Wall Street Journal, October 16 link

Georgia, threatened by a prolonged drought, declares state of emergency and is forced to choose between water for wildlife or for humans: NPR, October 22 link

The Great Lakes are shrinking and cargo ships are forced to carry less: New York Times, October 22 link

The West is running out of Water: New York Times, October 21 link

Meanwhile, in New York the late-October dress code remains t-shirts, shorts and flip-flops. Comfortable and scary...

Slow Down Before You Hurt Someone

As the father of three young adult men, I recall my anxiety when they started driving. If you have been through this you know what I am talking about.

Young male drivers tend to go too fast. On one occasion, after pleading with one of my sons to slow down, I finally raised my voice and said. "Slow down! Let me see you drive as if you are a senior citizen." It worked.

In business, there is the constant push to go faster. To accelerate market entry. To get ahead of the competition. To skip the test market and launch. To fix a problem. And so on. The need for speed is only magnified if you are facing a quarter to quarter performance mentality. Make the future come alive now -- why go 100 kilometers an hour when the car is built for 260?

But with speed comes risk. A business should not move faster than its ability to manage the associated risks. Or, it may be unprepared for an unexpected curve, to stick with the driving analogy.

Take the example of Pfizer, the world's largest drug maker. Its 3rd quarter profit fell 77 percent due to the expense of discontinuing its inhaled insulin treatment Exubera. The write-off for Exubera is $2.8 billion.

Pfizer faces slowing growth ahead due to competition from generic alternatives and a lack of blockbuster drugs in its pipeline. Pfizer CEO, Jeffrey Kindler, has said there are no silver bullets or quick fixes to this problem. But it appears that Exubera was intended to be just that.

Exubera, once expected to be a $1-2 billion drug, was rushed to market in early 2006. It failed to catch on with doctors or patients due to concerns about safety, inconvenience and cost. First year sales of Exubera were less than $15 million.

Of course, Pfizer must adopt a sense of urgency and take the steps to rebuild its pipeline. I am not suggesting that it operate with a business as usual mentality. But in the case of Exubera, Pfizer moved so fast that it was unable to fully assess both the opportunity AND and the risk. It finds itself in reverse rather than fifth gear.

Sometimes it pays to slow down.

Steinbrenner And Torre Are Both Stupid!

Now that I have gotten your attention, take a moment after your read this and post a comment. Let me know what you think of Karma Capitalist. Now, back to the Yankees.

It has been widely reported that Joe Torre turned down the offer of a one year contract to coach the Yankees for $5.0 million plus incentives -- a pay cut from his soon to expire 3 year $19.2 million contract.

There is much talk about how the Steinbrenner clan manages the Yankee franchise like a big business including their newly discovered "pay for performance" philosophy. However, they have forgotten one of the most important lessons of management -- effective succession planning. And on Torre's part, he may be making one of the biggest mistakes a "CEO" can make -- letting ego dictate his decisions and putting his interests ahead of the interests of the team and their customers (the fans).

There is way too much ego involved in running the Yankees these days. Torre's ego is the least of it. As Steinbrenner the dictator fades, his gang of "I want to be next in charge" lieutenants are angling for the throne. And based on the Torre situation, a similarly disruptive transition awaits Yankees' fans on this appointment as well.

It could have been managed better. Steinbrenner could have offered Torre a two year contract and appointed a deputy such as Don Mattingly as clear successor. Tyler Kepner and Ben Shpigel of the New York Times put forth this scenario in their SportsThursday column. link

This story is about money. The $1 billion valued Yankees' franchise. Their $200 million payroll. Joe Torre and the $7.5 million he made this year -- more than twice the amount paid to Lou Pinella, the second highest paid baseball coach.

One would hope that old men like Steinbrenner (77) and Torre (67) would be long past measuring their value in financial terms. Clearly they are not. How do you calculate Torre's near term, intangible value to the Yankeess within a pay for performance framework. You can't. You use judgment -- an asset Steinbrenner has never amassed in all that he owns.

The decision about who should coach the Yankees next year should have been about building on the Torre legacy and laying down a foundation for a new one. And mitigating the risks of such a transition.

Too bad it didn't work out that way. Too bad for Yankees fans.

A Tale of Two Mortgages

This is a tale of two mortgages or rather, two middle-aged men.

Let’s start with Carlos.

Carlos is a naturalized citizen of the United States who emigrated from Columbia. Well-educated, Carlos was a mid-level executive for a large company in his home country. With pride, he says that he once had excellent skills in business administration.

Carlos never duplicated his early career success in this country. For many years, he has earned a living driving for a local car service/limousine company. I have known him for at least a decade and have enjoyed our discussions during trips to airports and meetings in the city.

Without exception, Carlos dresses in a suit, crisp white shirt and tie. He is courteous, yet formally respectful to his clients. He arrives early and will do what it takes to make his clients feel comfortable -- and more important than they probably are.

Carlos divorced many years ago, then remarried and started a second family. Eager to provide for his wife and young son, he saved and searched to find a home for them. In his best years, Carlos never makes more than $60,000.

Unable to afford the sky-high housing prices in the New York area, Carlos took a big gamble and relocated his family to South Carolina. With a huge smile, he showed me photographs of the first Christmas in his new house.

Unfortunately, Carlos could not find work in South Carolina and ended up back in New Jersey driving for the car service. He settled into a routine of living with his oldest son, sending money to his wife and visiting for short stays every few months or so.

Like many families who struggled to find an affordable house, Carlos would not have been able to buy a home if it were not for the sub prime mortgage market. Now like many of those same families, Carlos is likely to lose his house – if not for economic reasons, then for the difficulties of a long distance marriage. The situation does not look good regardless of his deep-seated optimism.

Now, let’s turn to John. An established and successful sales executive, John rode the first tech boom and earned ample bonuses and stock options along the way. Having put his kids through college and paid off the mortgage on his home in Westchester County, he sold options and bought a vacation dream house along the Gulf Coast of Florida.

John watched the Florida real estate market take off, and heard plenty of stories of big financial gains from buying and flipping condos. Eager to profit, John decided to get into the act himself. While he never considered himself a speculator, he quickly acquired 2 additional condos and a single-family home – and carried almost $1 million in mortgages.

In the spring of 2007, John was let go – the latest victim of corporate restructuring. Now 55 and finding it difficult to find a job and replace the $300,000 he earned before, John is beginning to panic. The interest rates on his Florida mortgages are rising. John’s wife Susan sells real estate mostly to keep busy and cannot make up for the lost income on her own.

It is unlikely that John will make it through the mortgage crisis with his assets in tack. The values of his homes in Florida are now below the face value of his mortgages. John will likely sell all of his real estate to clean his slate of debts. While John will never be impoverished, this will be a set back he will likely never recover from. They are still too young to rationalize the sale of their Westchester home as the downsizing of empty nesters. For the first time in many years, John’s relationship with Mary is strained.

Perhaps you feel less sorry for John than Carlos. The speculators deserve to feel the pain on the downside, if they are going to make quick profits on the upside. And who can blame Carlos for taking bold steps to provide a nice home for his wife and young son.

Yet, John is inherently a good man too. He – and his friends -- viewed capital gains as an entitlement. He had worked hard and long hours to be in a position to invest in real estate on the side.

Both tried to provide for their families. Both failed. Should the government step in and help Carlos? John? Both or neither? Let me know what you think.

Youth Culture: The next workplace bias to overcome

I have been blessed to work for a number of companies noted for their excellence and leadership position. Talent was the most notable factor in the success of these companies. With a career that has spanned decades, I witnessed first hand how companies faced the opportunity and challenge of increasing the diversity of their work force.

In the mid-eighties, I recall during one diversity training workshop, a boss of mine remarking that our company consisted entirely of WASPs. When I replied that in fact I was an Italian-Irish Catholic, his reply was, "Having gone to Harvard Business School, you are in practice, a WASP..." Women, people of color, gays and the disabled all faced enormous obstacles to their advancement. While progress has been made, much more can still be done.

The next workplace bias in my view, which must be addressed is towards young people, particularly those in their twenties. Let's face it, these young adults have a very different sense of fashion, behavior and interest, which often clashes with the typical workplace norm. Does your company have a dress code? Then how is it applied to a tattoo, piercing or an unshaven face? Does your company have standard work hours? Then how will someone fit in who prefers to work from 10am to 3pm and then return to work after dinner? Does your Company expect everyone present at meetings? How about someone, who is a huge contributor but prefers to work remote and communicate via text message?

Take a test of your tolerance by making a hypothetical choice between two candidates who have the same credentials on paper -- one fits the typical company profile and the other is more Lower East Side. You may be like most companies who in my opinion, would choose the candidate with the more "acceptable" model of professionalism. This would not be to your advantage for the two reasons.

First, the U.S. workforce will soon face a major shortage as baby boomers begin to retire. You need more young workers. And second, the pierced or tattooed candidate may in fact be the more qualified person. If companies restrict their hiring practices to those who look "normal" or "safe" then they are arbitrarily reducing the pool of candidates. In the end, they will wind up being less competitive.

I am now helping run a start up. I an continually amazed by the talent available to us -- many of these contributors are under 30. They are bright, creative, entrepreneurial and productive. But, they do not come from central casting.

One of our potential partners, Lori Leven, just happens to also run a world famous tattoo and piercing parlor named New York Adorned. New York Adorned also sells antique and imported, high end jewelry from India. link

Our technology consultant (serving as our tech department) is run by a tattooed, Krishna devotee and young father of three -- who just happens to do outstanding web design and development. His award winning company is named Blue Fuse and does elegant and highly functional design for a wide range of clients. link

And, we recently produced a series of web videos with a film production company called Chop Wood Carry Water run by the award winning team of Eddie Boyce and Doug Karr. Eddie and Doug visit the office almost every day including Sundays but rarely show up before noon and leave long after midnight. They have produced documentaries, short films and commercial projects such as advertisements and video press releases. link

So, if you are looking for talent or are in need of a partner, expand your field of vision and include younger candidates whose talents may surprise you -- more than their looks distract you.

Very Long Distance Customer Care

The Penfolds wine making team travels over 10,000 miles from Australia to New York (and many cities in between) to provide the ultimate in customer care.

Every two years, Penfolds reached out to owners of their wines and offers a free inspection and re-corking procedure for any wine 15 years or older. Whether you have a single bottle or case... of their world renowned Grange or their everyday wine, Bin 347, they provide the same level of care and attention. link

Earlier this week, I had an appointment in mid-town New York with Peter Gago and the Penfolds staff to examine the 5 bottles of 1985 Grange I have stored in my cellar. Grange is a world-class wine noted for its considerable ageing potential -- which can be cut mercilessly short due to a flawed cork. Corks may dry out over time and may need to be replaced. I know of no other wine producer of ultra premium wines which offer this level of service.

My experience with Penfolds this week was remarkable. I had a specific appointment to make sure the team gave my their undevided attention. After examining my five bottles, it was determined that only one needed re-corking. The process was explained to me step by step and my wine never left my sight. I left not only with the wine I brought but with a gift bag from Penfolds including a 10 year old Shiraz, a Reidel handmade wine glass and a book listing all Penfolds wines and vintages with annually updated tasting notes.

Why does Penfolds go to this length? Already known for producing one of the greatest red wines on Earth, it makes sense for Penfolds to invest in protecting the customer experience, brand values and premium positioning associated with Grange. The re-corking service also allows Penfolds to establish a personal relationship with its end consumer - which is difficult if you make the wine in Australia, ship it around the world and sell through wholesalers and retailers. There is a limit to the amount of customer touch one can do over the Internet.

Short-term, the economics probably don't make sense. But the wine business at the high end is not about short term economics. It's about strengthening brand equity and preserving the value of its past vintages. This is measured in generations, not quarters.

Raise a glass to Penfolds and say, Cheers!

Wired and Wonderful

Ah, the good old days of telecommunications. Remember Ma Bell? Even after the historic break up of AT&T, everyday life was pretty simple for the phone consumer.

Your RBOC (Regional Bell Operating Company) provided local service and AT&T "long lines" provided long distance service. Sure, wired technology was basic. And, the monopoly structure meant you paid too much. But in the words of one tech guru, "every time you picked up the phone receiver, you heard a crystal clear dial tone." Telecommunications became the ultimate standard for tech reliability.

Deregulation of service brought more choice and keener price competition. You could shift from AT&T to MCI and buy your phones from Panasonic at Wal-Mart. And, wireless technology ushered in a whole new era of communication convenience and value added services. But life today is a lot more complex, confusing and downright frustrating from a consumer experience standpoint.

The rapid change of mobile technology coupled with the variety of service providers competing for your business should translate into great value and service. Yet, it is not. Instead, consumers are faced with an array of confusing monthly pricing plans, steep fees for value-added services and multi-year subscription commitments. It doesn't have to be this way.

I lived in London for several years and loved my BT service and my G3 Motorola phone, which worked without interruption almost everywhere in the world. I don't recall ever having a problem with service interruption. The pricing plan was relatively simple.

How do we make the wireless experience as satisfying in the U.S.? I have two recommendations. First, de-couple phone marketing from service plans. There is absolutely no economic benefit for consumers in packaging phones and service plans. The economics are entirely in favor of the wireless provider even after considering phone rebates. Consumers ought to be able to buy any phone when and where they choose. Second, offer month-to-month service contracts; add a reasonable cancellation fee such as one month notice. These two changes alone would revolutionize the U.S. wireless market. It might actually drive growth and reward those companies which provide the best phones and the best service.

Today, wireless companies act like they have the old AT&T monopoly behind them. Too bad, they don't offer the same value, service and reliability.

The Hippies Were Right!

Well, at the very least about a few things.

Joni MItchell wrote Big Yellow Taxi and put it out as a single in 1970. The release of this pop anthem for the green movement coincided with the first "Earth Day" and help popularize eco-awareness.

Green activists back then pushed Congress to pass the Wilderness Act and ban the use of the synthetic pesticide, DDT. Scientists cite the ban on DDT as a major contributing factor in the return of the American Bald Eagle --"You dont know what you've got... Till its (almost) gone."

Mitchell released an updated version of "Big Yellow Taxi" on her new CD, Shine, just in time for eco-activism part II.

Here are the lyrics --

They paved paradise
And put up a parking lot
With a pink hotel, a boutique
And a swinging hot spot
Dont it always seem to go
That you dont know what youve got
Till its gone
They paved paradise
And put up a parking lot

They took all the trees
Put em in a tree museum
And they charged the people
A dollar and a half just to see em
Dont it always seem to go
That you dont know what youve got
Till its gone
They paved paradise
And put up a parking lot

Hey farmer farmer
Put away that d.d.t. now
Give me spots on my apples
But leave me the birds and the bees
Please!
Dont it always seem to go
That you dont know what youve got
Till its gone
They paved paradise
And put up a parking lot

Late last night
I heard the screen door slam
And a big yellow taxi
Took away my old man
Dont it always seem to go
That you dont know what youve got
Till its gone
They paved paradise
And put up a parking lot

If I were on the Comp Committee...

Angelo Mozilo
Chairman of the Board, CEO
Countrywide Financial (CFC)

2006 Total compensation: $43.0 million


The story of Countrywide Financial and its CEO, Angelo Mozilo, illustrates the point I am about to make. Countrywide is a big force in home mortgage lending and over the years, Mr. Mozilo became one of the highest-paid executives in America. In 2006 alone, FORTUNE Magazine reports that he made $43 million. link

Other reports based on public filings indicate that he took home $160 million in 2005 and $120 million in 2006, when factoring in pay, profit on exercised stock options and stock gains.

As everyone knows, Countrywide's stock tanked in late summer as its sub-prime lending woes made the headlines. Thousands of employees lost their jobs and the Company was forced to seek an emergency investment from Bank America to stave off bankruptcy. CFC closed yesterday at $19.88 - way off its 52 week high of $45.26. Leave aside the moral issue of foreclosures and personal bankruptcies for those middle and lower income families who can no longer afford their variable rate mortgages. Let's focus exclusively on this mess as it relates to CEO compensation.

Is it appropriate that a CEO should make tens or hundreds of millions of dollars as he or she leads the Company right into disaster? Even if the board takes action and fires the CEO, employees and shareholders are left to feel the most financial pain in view of the huge sums of money already made by the CEO. This just doesn't seem fair. These CEO's should have more in the game than their pride and ego.

I have a solution. It is called variable value options (VVO for short). Here is how a VVO would work. Options have vesting periods; typically 3-4 years. Options have exercise periods; 5 or 10 years. Why then is the exercise value of an option determined by the price on a single day? Why not have an 18 or 36 month option value period initiated by the option exercise. An option's final value to the executive would be determined by the average price of an option over this extended period.

Under a VVO plan, the CEO would continue to participate in the performance of the Company's stock either way -- if performance gets better, stays the same or gets worse. This doesn't seem unreasonable given that CEO's are charged with building the long term value of the Company and they can make millions doing so.

The easiest way to implement this policy would be to eliminate the right to buy and sell an option immediately upon exercise. Force all executives to hold their shares upon exercise. This would truly align the top management with shareholder interests.