What's next -- the company pays for the CEO's home utility bills too?

Boeing Company, the leading maker of commercial and military aircraft, released the Proxy Statement for its upcoming shareholders' meeting in April. The proxy includes disclosures regarding compensation to executive officers for the year ended December 31, 2007

Boeing paid its Chairman and Chief Executive, W. James McNerney, Jr., just about $19 million last year. Mr. McNerney will need the cargo capacity of a 747 airliner to carry home his pay. Here are the highlights:

* Salary of $1.8 million
* Cash bonus of $4.3 million
* Restricted stock awards valued at $4.8 million
* Stock options worth $3.7 million
* An increase in his pension valued at $3.5 million
* And, about $1 million in "other" compensation

No matter what you think about Boeing, its performance last year or McNerney's contribution to this performance, what is most striking is the $1 million in other compensation. The SEC now requires companies to disclose far more details about the perks provided to the CEO and other executives. The "other" category includes personal benefits, life insurance premiums, tax reimbursement and company contributions to retirement plans.

Most of McNerney's personal benefits are standard CEO issue. $556,000 for the use of Company aircraft, a car and driver, home security service, country club memberships, financial counseling advice, and this last item that caught my attention -- about $90,000 to install a back up generator at McNerney's home to restore power should the electricity be lost. The reason Boeing paid for the generator is to ensure "business continuity." In other words, so McNerny can work during a power outage.

Anyone who makes $19 million in any one year, should be able to afford a generator --even the top of the line model -- on their own. The McNerney family will get as much if not more benefit from it than Boeing -- unless of course, the generator will be used to only power McNerney's PC and fax machine and the electricity in his study.

The logic of "business continuity" could easily extend to many other items. Why not just go ahead and pay all of McNerney's utility bills? And to be really safe, Boeing should put some shelf stable food in the pantry in case McNerney gets hungry while doing all that work during the natural catastrophe he's expecting.

The Seven Deadly Sins

Three big names were dragged into the legal spotlight this week.

Soon to be ex-Governor of New York, Eliot Spitzer, fell from defender of the moral high ground to "Client Number 9."

Richard Scruggs -- the lawyer behind the 1998 $206 billion tobacco company settlement -- pleaded guilty to conspiring to bribe a judge.

Media mogul Barry Diller, who is wrestling in court with financial backer John Malone for full control of his media empire, took the stand.

So, what brings these three and many others like them to their judgement day? Governor Spitzer risked everything -- his political ambition and his family -- to spend a couple of hours with a hooker. Scruggs, who made over $200 million from the tobacco settlement, bribed a judge to avoid paying a fair share to an attorney who worked with him on the settlement. Despite mega wealth, a jet setting life and a secure place in the media hall of fame, Diller lacks what he most covets -full control over his own media empire.

It's easy to say that Spitzer suffered from lust. Or, Scruggs from greed. Or, Diller from envy (of Rubert Murdoch). But often the root cause appears more complex. To illustrate, take the Sptizer poll adjacent to this post -- How many of the deadly sins did Eliot Spitzer commit? One, three or all? As a reminder, here is the complete list:

1. Lust involves obsessive or excessive thoughts or desires of a sexual nature.
2. Gluttony is the over-indulgence of anything to the point of waste.
3. Greed is a sin of excess applied to the acquisition of wealth in particular.
4. Sloth represents the failure to utilize one's talents and gifts.
5. Wrath is an inordinate and uncontrolled feelings of hatred and anger.
6. Envy is an insatiable desire for something that someone else has.
7. Pride, is the self-loving desire to be more important or attractive than others.

And now, for the less rational side of executive compensation....

General Motors Chief, Richard Wagoner, is receiving a 33% raise for 2008. His base salary is jumping from $1.65 million to $2.2 million and he is also receiving another $1.68 million in equity compensation for his performance in 2007. To refresh your memory, GM lost $38.7 billion in 2007 -- the largest annual loss ever recorded by an American company. And in early February, in an effort to trim ongoing losses, the company offered buyouts to 74,000 employees - its entire US hourly workforce.

I wonder if the GM Board authorized the employee buyouts in the same meeting during which it approved the Compensation Committee recommendation to increase Wagoner's pay. Let's hope there was at the very least a coffee break between these two Board agenda items.

In other compensation news, the Boards of home builders KB and Toll Brothers are inventing new methods to richly reward their CEOs, even as their operating profits and stock price drop amidst an industry slump.

In direct contrast to General Electric -- which ties CEO pay to shareholder returns, Toll has decided to replace a similar performance plan with a bonus method based entirely on subjective criteria. This kind of bonus plan can be summarized as, "Our company performance sucks but we like you and don't want to penalize you...."

The same lack of pay-for-performance rigor is occurring at KB. Its Board awarded KB CEO, Jeffrey Mezger, a "discretionary" bonus of $6,000,000 for 2007. Under the Company's official bonus plan, which is tied to operating performance, he would have not received any bonus for last year. KB stock fell almost 60% in 2007.

I Can't Quit You Babe!

The price of oil hit a new high this week -- over $104 per barrel. What did our leaders have to say?

President Bush responded, "It should be obvious to all that the demand is outstripping supply... We've got to get off oil." What is obvious to many is not always obvious to all... like a 3rd grader "discovering" gravity.

And, Exxon Mobil Chief Executive, Rex Tillerson, offered, "It's pretty crazy, isn't it?" I believe Jed Clempett of the Beverly Hillbillies uttered a similar remark when he unexpectedly struck oil while hunting opossum on his farm in the Ozarks.

There is a lot of finger pointing going on. What's driving up the price? The weak dollar. OPEC production controls. Commodity speculators. Developing countries like China and India.

Like gravity, the underlying principle is very simple. As demand increases and supply dwindles, the price of oil will go up. And up. When it hits $150/barrel, I will offer my own pithy insight, "I told you so."

A Bargain for $14.2 Million!

The huge, global conglomerate – General Electric - reported this week that it paid its CEO, Jeffrey Immelt, $14.2 million in total compensation for the year just ended. In an extraordinary move, GE also cancelled $7.3 million in previously awarded stock incentives because the company failed to meet internal benchmarks for total shareholder returns. So, in effect, Mr. Immelt's take home pay was cut in half to $6.9 million.

In exchange for Immelt’s services, GE is getting a bargain. While Immelt does not have the public profile of his predecessor, Jack Welch, he generally receives high reviews from analysts, stockholders and business professors.

To put this in perspective, the median CEO compensation for S&P 500 companies was $8.5 million in 2006 (the most recent year results are available). How does GE compare to the typical S&P 500 company? It is bigger ($170 billion in revenues). It is more successful ($22.5 billion in net income and 20% return on equity). And, GE is far more complex – 327,000 employees across the globe operating in a wide spectrum of businesses. GE is a technology, media, and financial services company -- producing everything from jet engines and light bulbs to the NBC Nightly News.

Experts point to market forces (CEO pay is linked to the availability of suitable talent to assume the role) and pay for performance schemes (As the company performs, so goes the pay of the CEO). But by these measures, Immelt’s compensation should be significantly higher. It appears that the compensation committee of GE has another principle at work in setting Immelt’s pay – a “fair and reasonable” principle that often is missing in the boardroom as deliberations unfold about executive compensation.

How may CEO candidates could actually run GE as well as Immelt? Not many. The question is not how many think they can but how many actually can.

What is extraordinary is how little Immelt makes compared to the celebrity CEOs – who usually lead smaller, less complicated and diverse businesses. Steve Jobs of Apple made $647 million in 2006. Terry Semel, who failed to transform Yahoo, still made $174 million in his final year as the CEO of Yahoo. And, the CEO of AT&T made $49 million. It is hard to understand why Ed Whitacre of AT&T is worth seven times more than Immelt.

The critics have good reason to complain about CEO compensation, which often defies the logic of long-term success, company scale or operating complexity. The same critics should argue for a pay raise for Jeffrey Immelt.

Little Italy's Last Barber

At the turn of the 20th century, a growing tide of Italians, largely from the south, immigrated to the United States. Out of a population of 14 million southern Italians, an estimated five million left by the outbreak of World War I. Those who left Italy apprenticed stereotypically as tailors, bakers, masons and barbers.

A man named Sal came to the United States during the next immigration wave just before the second world war. He was born in Sicily and became a barber after settling in New York. Today, according to his own census, he is the very last working Italian barber in Manhattan's Little Italy.

A few months ago, needing a haircut, I reasoned that there had to be a good barber in Little Italy. After walking just a few blocks from my office, I happened on Sal's barber shop. When I arrived Sal was giving a haircut to an older gentleman as they conversed in Italian. When it was my turn to take the chair, Sal introduced himself and then explained that the gentleman before me was Arturo Di Modica, the noted sculpture of the 7,000 lb. Charging Bull on Wall Street. When I asked if he cut the hair of other celebrities, he said no because of the distraction of the paparazzi. He cut Robert DeNiro's hair once and that was all it took to establish the shop's rule.

Sal's Sicilian accent is still very thick and it takes all of my powers of concentration to keep track of the meaning and direction of our dialogue. While I struggle with his speaking, he has no difficulties at all with mine. I learned that his grandfather lived to be 105 and died of a heart attack after an argument with his 93 year old wife, who had complained about him coming home drunk! His 85 year old aunt just came over for a two week vacation and insisted on seeing all of the New York sights on foot, despite the January cold. Sal apparently has very good gene stock.

After my first haircut, Sal charged me $15 even though the sign in the shop indicated that the price of a gentleman's haircut was $20. The next time I visited the shop, I asked Sal for a restaurant recommendation -- someplace with great food off of the tourist grid. I figured who better to ask than the man who has cut hair at the same location for over 50 years. Two days later, I visited the restaurant and mentioned that Sal had sent me. Within minutes, Sal was at my table -- having walked over from his shop to say hello to the friend (me) having his lunch.

I now give Sal $20 for my haircut plus a $5 tip. But the money I give him doesn't last long in his pocket. After cutting my hair, Sal insists that I join him for a quick espresso and pastry at Ferraro's down the street. He refuses to allow me to pay.

If you are in New York and need a classic haircut, stop by Sal's Shop located on Grand Street just off of Mulberry. The shop is located directly opposite the Italian Food Center identified in the photograph above. He just might buy you an espresso as well. Fluency in Italian is not a requirement.

Pay the fine already!

Believe it or not, Exxon Mobil is still contesting the $2.5 billion punitive fine it was levied for the Valdez oil spill -- almost twenty years after the event! Exxon Mobil will argue in front of the Supreme Court today that under maritime law it owes nothing to the fisherman, residents and Native Alaskans harmed by the massive oil spill. Exxon states that it has already been punished enough by paying $3.4 billion in clean up costs. For more on the story see link

If you find this hard to believe, let me illustrate it with a hypothetical anecdote. Suppose you have a party in your home. One of your guests has a bit too much to drink and backs his car into your above ground heating oil tank, which is adjacent the garage. Luckily no one is hurt. Your neighbor witnesses the accident and immediately calls the local police. The municipal services unit of your town, in cooperation with the EPA, arrives on the scene the day after to clean up the oil -- which has seeped beyond your backyard and into a stream about 100 feet from your house. Two days later, the oil spill is cleaned up and you have a new oil tank installed by your heating oil company. It's hard to gauge the environmental impact of the accident and you hope for the best.

Your guest receives a six month license suspension and pays a $500 fine. A month later, you receive a summons to appear in court and after a brief hearing are ordered to pay the town $6,800 in clean up costs and a fine of $5,000. Since you earn about $80,000, the fines will sting but not bankrupt you. Your attorney successfully files a motion allowing you to pay for the clean up costs but appeal the fine. 20 years later, through appeals and legal maneuvers, you still haven't paid the fine. Most of your neighbors no longer speak to you out of principle.

This is exactly what Exxon Mobil has done. The numbers are proportionate. The company made $40 billion in profits last year. A $2.5 billion fine would sting but not bankrupt. Exxon Mobil doesn't seem to care what most people think of it.

Trix is good for you... really!

The brand manager of Trix is on the hot seat these days. Parent company, General Mills, is attempting to remake itself by revamping its product line to be healthier and more nutritious. It's one thing to promote the nutritional value of Cheerios, which is made of whole grains and has only a gram of sugar per serving. It's a lot harder for Trix with 13 grams of sugar -- sweeteners are its top ingredients after whole grain corn cereal.

Putting teeth into the company's wellness objectives seems like the right thing to do -- the thinking behind this compensation philosophy is that executives rarely take difficult steps to meet qualitative goals unless they have monetary incentives to do so. The flaw in this compensation philosophy, however, is that it may lead to incremental thinking. Why take big steps to transform a business or brand if it will put at risk the ability to also meet short-term financial metrics. If you are the brand manager of Trix, you won't make big changes to the brand to boost its nutritional value, if the result is that kids are less likely to grab the box for a second, heaping helping.

It's a different story if mothers stop buying Trix because of its high sugar content and the brand incurs a significant loss of market share or profit. Dramatic steps will be the order of the day. But this is more accurately described as a turnaround, not a strategic transformation. Strategic transformation -- ahead of market share or profit declines -- is driven by leadership, not bonus plans.

General Mills realizes this and is hedging its bets. In addition to motivating managers to make healthy changes to its current brands, the company is also making acquisitions to change the composition of the businesses. Next to Cheerios and Trix now sits Cascade, a leading brand of organic, high nutritional value cereals. The brand manager of Trix may fail but General Mills can still succeed in its mission by buying brands like Cascade. For more on the story, see the Wall Street Journal link

What is it about bread?

Exhibit II in the bread with a higher calling category is Ezekiel 4:9 by the Food for Life Baking Company link

The key proposition of Ezekial 4:9 is that it is 100% flourless. Made from "freshly sprouted, organically grown grains," this bread is inspired by the Holy Scripture verse: "Take also unto thee Wheat, and Barley, and beans, and lentils, and millet, and Spelt, and put them in one vessel, and make bread of it..."

According to Food for life, this bread is a miracle of nutrition -- a bread made completely from vegetable sources which matches the protein quality of animal products such as milk or eggs. Praise the lord!

Food for Life also makes Genesis 1:29. What Food for Life does not make is a bread named after Revelation 16:8,9 which speaks to the earth's destruction due to global warming. “And the fourth angel poured out his vial upon the sun; and power was given unto him to scorch men with fire. And men were scorched with great heat...”

Food for Life ships all of its products frozen from its bakery in California across its international distribution chain.

What the heck is yoga bread?

Wandering the aisles of a New Jersey supermarket yesterday, I came across a new product -- "Yoga Bread" by a local bakery (The Baker of Milford, New Jersey). Being a long time practitioner of yoga, I was both intrigued and put off by the name.

These days, yoga is being used to sell just about any and everything -- from Chrysler Town & Country minivans to Chopard limited edition "om" jewelry. It's almost bad enough to push me off the mat and back into the gym.

It's too bad The Baker doesn't have the confidence to sell the bread without a marketing label. "Yoga Bread" is actually pretty good to taste and contains nutritious ingredients such as organic whole wheat and rye, dried unsweetened cranberries, sesame, sunflower, poppy and pumpkin seeds, sea salt, flax seeds and olive oil.

My personal view (more as a consumer than a media and marketing professional) is that The Baker has it wrong. The company would be far better off positioning the bread as nutritious and good tasting -- better for you than say, Pepperidge Farm Raisin Bread, -- while not sacrifing any of the pleasure of eating it.

To top it off, Yoga Bread is described in the context of "five yogic principles" -- proper exercise, proper breathing, proper relaxation, proper diet, positive thinking and meditation. To come up with this, The Baker took the easy route and simply ripped off the Sivananda Yoga website which lists these same five yoga "points." link .

While Sivananda is a respected organization, they have simplified the yoga principles for the American and Western markets. In truth, there are actually eight yoga principles or "limbs" -- not five -- according to the classic text of The Yoga Sutras of Patanjali, the ancient, foundational text from which all forms of Yoga are derived. To learn more about the eight limbs of yoga, here is a quick read on the subject courtesy of Yoga Journal link .

If The Baker insists on using yoga as a marketing prop, then the company should at least credit sources -- and perhaps even make the marketing message accurate!

A Hockey Pro with Teeth, Brains & Values

There are not many professional athletes who would choose to spend their retirement years this way -- particularly if they are as young, talented and smart as Joe Juneau. In this week's Sports Illustrated, Michael Farber writes about the inspiring path Juneau has taken since leaving the NHL after the 2003-2004 season. link

The setting is the town of Kuujjua in the Nunavik region of the Canadian sub-artic. The town's 2,100 residents -- mostly Inuit -- live in drab pre-fab housing. Temperatures drop to -58 degress Fahrenheit in winter. Suicide is the leading cause of death. The life span of an Inuit is almost 15 years less than the Canadian average. Drug and alcohol abuse is rampant among all ages. As Farber reports, many children are "physically, psychologically and sexually abused".

Why would any sane person with a bright future move to Nunavik by choice?

Joe Juneau is both sane and accomplished. He could probably accomplish almost anything he set out to. When he arrived on campus at Rennsselaer Polytechnic Institute in Upstate New York, he did not speak a word of English (RPI is not located so far north that French is the second language). Juneau graduated in three years with a 4.0 grade point average with a degree in aeronautical engineering. He made almost $3 million a year when he was a pro hockey player. Before his pro career, he was an Olympic silver medalist.

Now, this most famous resident of Kuujjua is the head of the Nunavik Youth Hockey League. Juneau is devoting this portion of his retirement life to 180 children who participate in the youth hockey program. Juneau's not scouting young talent for the Montreal Canadiens. His partner of 10 years and mother to their two children, Elsa Moreau, says that Juneau's "investing in a mission, something bigger than himself. This is a grand projet humain."

Juneau's mission is about the education, health and welfare of these kids. To learn more about the Nunavik Youth Hockey League and lend support to Juneau's mission visit their website link

Clinton's Golden Voice Part II

Searching the Washington Post archives, I discovered a complete listing of speeches that Clinton made during the 2001 - 2005 period.
link Over these five years, Clinton gave over 175 speeches (that's 35 a year) at an average rate of about $175,000 each. He gave 9 speeches for $300,000 or more.

Clinton commands a significant premium versus other retired politicians on the speaking tour. Even George H.W. Bush, the 41st president of the United States and friend of corporations and oil nations alike, only receives $50,000 to $75,000 per speech -- about the same rate as Jimmy Carter, ex-president, philanthropist, peace negotiator and peanut farmer. Then again, former vice presidents and presidential candidates don't do nearly as well -- Bob Dole commands $30,000-$50,000 while Walter Mondale's rate is around $25,000. Ed Koch, New York's colorful former mayor, gets only $10,000 per speech despite the high cost of living in New York City.

If you have the money and want to hear someone other than a politician, you can invite legendary basketball coach, Phil Jackson, for $75,000 or former Yankees manager Joe Torre for about the same. Don't want to listen to a coach either? Even egomaniac Donald Trump gets only receives $75,000 per speech -- less than half of Clinton's rate.

The Newark Star Ledger had an article today about the impact of the steroid controversy on the sports collectible market. Unlike Clinton whose fees seem immune to controversy -- Barry Bonds, Mark McGuire and Sammy Sosa have all seen the value of their collectibles (such as bats and game jerseys) drop to about a third of the value they once had before the steroid scandal struck. link

The nexus of the steroids controversy and speaking fees, has not proven to be a bonanza for former U.S. senator George Mitchell, who authored the Major League Baseball Commission report on steroids. You can get him to speak for the bargain rate of only $50,000. Perhaps his rate would be higher if he actually used steroids rather than simply write about them.

The Clinton Money Machine

The disclosure this week that Hillary Clinton recently loaned her presidential campaign $5 million prompted me to give further thought to the Clintons and their current state of affairs. I am not thinking about the presidential campaign, politics or the health of their relationship. I am thinking about their money – they have lots of it!

Since leaving office in early 2001, Bill and Hillary have created an extraordinary process of personal wealth creation. Very few Americans will ever match this rate or level of wealth creation particularly if you consider the age in which they initiated it.

For perspective, the median household net worth for someone in their mid-fifties earning at least $200,000 is just over $800,000. When they left the White House in early 2001, Bill and Hillary were in their mid-fifties. At the time, they owed upwards of $12-15 million – mostly due to outstanding legal bills related to Whitewater, Paula Jones, campaign fundraising investigations and the Monica Lewinsky scandal. They also purchased a house in Chappaqua, New York and took on a mortgage of $1,360,000. Seven years later, their net worth is now approximately $25 million, a +$40 million swing. We should all be as lucky in the run up to our golden years…

The $186,600 Bill receives from his presidential pension and Hillary’s senate salary of $169,300 are probably sufficient to cover the annual Clinton household expenses – enough to cover their overhead but nowhere near enough to pay down debt. That’s where the Clinton money machine kicks in.

Since leaving office, President Clinton has earned up to $50 million from giving speeches around the world at a rate as high as $350,000 a speech. He earned a $12 million book advance for his autobiography, “My Life.” Hillary also earned $8 million from her book advance on “Living History.” In sum, the Clinton’s together probably generated at least $70 million in earnings in the last 7 years. After paying Federal and New York State taxes and other withholdings, their take home pay was probably close to $40 million or roughly $5.7 million annually.

The math is pretty straightforward. The Clintons’ left office owing close to $15 million. They earned at least $40 million since, resulting in a household net worth of $25 million. This is before Bill receives his $20 million buy-out from Ron Burkle. Hillary can easily afford to lend her campaign $5 million.

This significant wealth creation on the part of the Clintons is extraordinary given how much controversy and scandal surrounded them. President Clinton's affair with Monica Lewinsky on its own is enough to end the money-making abilities of most executives. The increased spotlight on sexual harassment in the workplace has quickly ended the careers and earnings power of many.

How did Clinton manage to avoid this dead-end trap?

Well, it helps to be a worldwide celebrity. Celebrities have an unfair advantage over ordinary citizens when overcoming scandal or crime. It also helps to be hugely talented (Roman Polansky the academy award winning director, not Polansky the fugitive). If you have ever witnessed the Clinton charisma or the power of his speech making, you can't help but agree that Mr. Clinton is talented.

If you are a celebrity and are going to commit a crime or be involved in scandal, illicit sex is probably the easiest to overcome relative to your future earning power. Here's is my celebrity rule of thumb on the topic:

1. Illicit sex is the easiest to overcome (Hugh Grant, Eddie Murphy)
2. Drugs and alcohol are usually forgiven (Eric Clapton, Kate Moss)
3. Crimes of the mouth are unfortunately tolerated (Don Imus)
4. If you are going to cheat, do it on a technicality (Martha Stewart)
5. But never cheat the public of its trust (Pete Rose, Pee Wee Herman)
6. Murder is hardest on the pocket book (OJ Simpson)
7. But hurting animals can be just as bad (Michael Vick)
8. There are limits to just how much you can get away with (Michael Jackson)
9. If all else fails, make them feel sorry for you (Britney Spears)
10. Or, thank God you come from a rich and powerful family (Ted Kennedy)

$40 Billion can't buy innovation

Values such as innovation, open-mindedness and collaboration can't be bought -- no matter how much money a company has. Not even $40 billion.

ExxonMobil reported that it earned $40.6 billion in profits in 2007 --its highest level ever. This isn't all that difficult to do with the help of a near doubling of oil prices to about $100/barrel. But for all of this profit, ExxonMobil is standing still as a business.

Last year, it replaced the oil and natural gas that it produced with as many new reserves. But this accomplishment will be difficult to repeat in the years ahead. ExxonMobil is competing for energy reserves with producing nations such as Saudi Arabia and Venezuela as well as national energy concerns in developing countries such as PetroChina, Petrobras (Brazil) and Gazprom (Russia).

Today ExxonMobil and the three other western oil majors -- Chevron, Shell and BP -- have an ever decreasing share of the global oil market. Today they control just 6% of this market and ultimately their share will drop to near zero as producing countries protect their economic interests first.

The demand for energy -- and the worldwide chorus for new, non-fossil fuel sources --should be a bonanza for a company of ExxonMobil's size and financial strength. Unfortunately, ExxonMobil lacks the confidence and core competency to invest, innovate and capitalize on this demand. Instead, it acts more like a bank -- paying shareholders $40 billion last year through a rich mix of dividends and buybacks. Based on how ExxonMobil spends the money it makes, the energy problems of tomorrow appear to be bigger than its balance sheet today.

Like ExxonMobil, Microsoft has the money but not the skill to innovate. Microsoft made headlines last week by setting in motion a $44.6 billion hostile takeover of Yahoo. While this is a bold step financially, it will not strengthen the software giant's position over the long term. Bulking up its advertising audience will do very little to protect Microsoft's desktop dominance against Google or new technological threats.

Innovation costs a lot more than $40 billion... particularly if the legacy of your values has more to do with Goliath than David.

Odds & Ends...

Driving to the office today, I made a quick choice on the radio dial. First option was a NPR segment on the purchase of Countrywide Financial by Bank America and CEO Mozilo's decision to forgo close to $40 million in severance benefits. My second option was the classic, Miles Davis recording, Bitches Brew, featuring an all-star line-up. Easy decision -- enough already about Countrywide.

A couple of weeks back, new Merrill Lynch CEO, John Thain, was quoted saying, "I didn't cause this problem" referencing the investment bank's sub-prime financial woes and balance sheet write-offs. It appears that Thain has already lost the team-oriented, consensus building culture of the Goldman Sachs' partnership. Much better to say, "We will solve these problems" then to say "They caused it...."

Sears is a mess. Once referred to as the next Warren Buffet, Edward Lampert has certainly dispelled any likeness to the "Sage of Omaha" with his Sears Holdings investment. Financial performance, competitive strength and customer satisfaction are all way down since Lampert made his investment. The latest "plan" calls for a re-structuring of Sears into separate operating units such as Craftsman tools and Kenmore appliances. Current CEO Aylwin Lewis is out. Even before Lewis departed, Lampert had the heads of strategy, merchandising and marketing reporting to him. Lampert may be a great hedge fund manager but he is no merchant. Warren Buffet would never make a menu decision at Dairy Queen or advise Coke on its formula.

Celeb Media Frenzy

My youngest son just completed the college application process with all of the typical family tensions. Each evening for the past six weeks, he would be up late finishing his homework first and then composing crafty answers to essay questions. To the question, "What outrages you most" he wrote about the public fascination with celebrities and the media's eager willingness to feed this fascination -- like Burger King serving triple Whoppers to the obese. In his view, what was once a healthy escape in moderation has now become an obsession at the expense of dealing with weightier societal issues.

Having been the General Manager of PEOPLE magazine in the mid-eighties, I read his essay with added interest. PEOPLE was launched by Time Inc. in 1976; its genesis being the two-page "people" spread in TIME magazine. PEOPLE invented celebrity journalism and remains today -- more than 30 years after its launch -- the most commercially successful and profitable magazine in the world.

The idea behind PEOPLE was to apply TIME magazine's successful editorial formula -- quality reporting and writing backed by double fact checking -- to the subject of people. The editorial premise was "ordinary people doing extraordinary things and extraordinary people doing ordinary things." The reader might be inspired by a small town hero and then, turn the page and get satisfaction from knowing that even celebrities had their share of problems and issues. In its early years, the tabloid voltage was kept in check and balance with a mix of human interest stories.

PEOPLE not only created a magazine category now filled with titles such as US, OK!, HELLO, STAR and IN TOUCH -- but also instigated the endless rise of celebrity coverage on TV and the Internet -- including ENTERTAINMENT TONIGHT, THE HOLLYWOOD INSIDER, TMZ, E!, CELEBRITY APPRENTICE and countless other reality shows. As the competition grew and spread across media, so did the level of sensationalism. Any person in the public domain was fair game to be profiled -- and no subject was off limits -- privacy barriers were virtually eliminated.

The obsession with celebrity was at its peak this week with the death of Heath Ledger. The building where Ledger lived is just around the block from my office in SOHO. For over 48 continuous hours, news trucks -- equipped with digital video production equipment and transmission antennas two stories high -- lined the blocks at the intersection of Broome and Lafayette. The morning after the death -- at the early hour of 6am -- I counted 15 of these trucks each staffed with a team of many including on camera reporters, producers, writers, editors and technicians.

After the announcement and before the autopsy report, what more was there to say about the death? The cost of this on-site operation must have been enormous. And there was little journalistic pay-off to justify the expense. I watched a variety of entertainment and "news" shows which featured segments about Ledger and would hardly call the coverage journalism -- speculation, rumor and tid-bits were the means to differentiate the story as opposed to in-depth reporting, research and fact checking.

The coverage was way overboard and made no sense at all -- on editorial, economic or marketing levels. Nothing much more was said yet at a significant cost premium. This is the flaw of modern media -- particularly old media such as television and print --spending considerable money in the hopes of creating a huge audience to generate sufficient advertising dollars to pay for the cost. It's hard to believe that this business formula is sustainable.

And, did the viewing and reading public actually want continuous coverage of Heath Ledger's death? I doubt it. At some point, reason must set in and attention spans must fade.

But perhaps I am wrong. Maybe the "Quadruple Whopper" would be a huge marketing hit. No wonder my son is outraged by the obsession with celebrities.

Redemption of Sorts

William Jefferson Clinton, the forty-second President of the United States, left office in early 2002 impoverished morally and financially. Despite a 65% approval rating -- the highest for any president since World War II -- the Clinton presidency was marred by his affair with Monica Lewinsky and the subsequent impeachment for perjury and obstruction of justice (although he was later acquitted.) Clinton faced huge legal bills accumulated to defend against investigations during his presidency.

Leaving office, Clinton went right to work earning six figure payments for speeches made around the world. For example, Fortune Magazine paid him approximately $125,000 to speak at the Fortune Global CEO Forum in Hong Kong in 2002. These speeches and public appearances earned the former president tens of millions of dollars.

Now, Clinton is poised to reap his biggest payday yet. The Wall Street Journal reported this week that Clinton is severing ties with billionaire Ron Burkle and is redeeming his share in Yucaipa, Burkle's investment firm, for an estimated $20 million. It is not clear what exactly Clinton has done to earn this huge payout. Clinton is redeeming his shares in an effort to protect Hillary's presidential aspirations by steering clear of potential conflicts of interest and politically sensitive issues surrounding Burkle's business interests.

Most certainly, the Clinton's are impoverished financially no more.

Refilling the coffers is easy for a former world leader of Clinton's stature. Much easier than moral redemption.

America's Pastime is Making Money

At Major League Baseball, economics triumphs over morality and legality. Or, more precisely over personal accountability. As a reward for boosting revenues by 400% and setting league attendance records, Baseball commissioner Bud Selig was recently awarded a contract extension through 2012. Mr. Selig is almost guaranteed to make at least what he made last year -- $14.5 million.

That's right, about $15 million a year is going to the man who failed to provide quick and decisive leadership when professional baseball needed it most -- at the earliest stages of the steroids and performance-enhancing drug controversy. Today, Major League Baseball has tough substance abuse policies. The sport banned steroids in 2002 and established testing and penalties in 2004. But nothing was done during the home run boom of the nineties when the realities of player substance abuse moved beyond mere suspicion.

The Mitchell Report, which was conducted at the request of Commissioner Selig, concluded that the MLB Commissioners, club officials, the Players Association, and the players all share responsibility for uncontrolled, illegal use of steroids in professional baseball.

Selig has now vowed to rid baseball of performance enhancing substance abuse and holds himself personally responsible for what was not done earlier. We should all be so lucky as to accept responsibility without corresponding consequences -- which is the implication of Selig's contract extension.

Barry Bonds' home run record deserves an asterisk. So does the revenue line item in MLB's accounting statements.

Good Clean Fun!

The company name -- Wham-O Manufacturing and this photo of its founders -- Richard Knerr and Arthur Melin -- says it all. With a corporate mission based soley on having fun, Wham-O launched such childhood favorites as the Frisbee, Hula Hoops, Super Balls and Silly String. Long before (and continuing after) sex, drugs, rock-n-roll and the digital age permanently shifted pre-adolescent attention, the premise of Wham-O was about active, outdoor fun. Never consistent in its financial or commercial success, Messrs. Knerr and Melin produced sufficient smiles and giggles to earn a spot in the good karma hall of fame. Mr. Knerr passed away this week at the age of 83.

"I am a lucky man..."

Sir Edmund Hillary, shown here with his climbing partner, Tenzing Norgay, passed away this week at his home in Auckland, New Zealand. He was 88.

Hillary and Norgay were the first to scale the 29,036-foot summit of Mount Everest, the world's largest peak. At the top, Hillary left a crucifix on behalf of the expedition leader and Norgay, a Buddhist, buried biscuits and chocolates as an offering to the gods of Everest. Queen Elizabeth II appointed Hillary a Knight Commander of the Order of the British Empire and Norgay was awarded the George Medal of Britain.

Later, Hillary travelled to the North and South Poles, becoming the first person to ever visit the highest peak and both ends of the Earth. In an interview, Hillary once remarked, "I am a lucky man. I had a dream and it has come true, and that is not a thing that happens often to men."

As his long life of accomplishment progressed, Hillary needed less and gave away even more. He preferred to be called Ed rather than Sir Edmund. For many years after the Everest expedition, he listed his occupation as beekeeper. And not until long after Norgay's death did Hillary reveal that he was the first to reach the summit. While both men were alive, Hillary would state that he and Norgay were a team and reached the summit together.

Sir Edmund created the Sir Edmund Hillary Himalayan Trust and raised millions for schools, clinics and other infrastructure projects for Sherpa villages in Nepal. He was also the president of the New Zealand Peace Corps. For a complete obituary, visit the New York Times website. link

Hillary's life is in sharp contrast to the life of another man frequently in the news these days -- Angelo Mozilo, the founder and CEO of Countrywide Financial, the embattled sub-prime mortgage lender. Unlike Sir Edmund, Mozilo wants more for himself even as he accomplishes less. In an earlier post, I commented on the hundreds of millions Mozilo has earned, even as his company has slipped into near bankruptcy. link

Now, Bank of America is set to acquire Countrywide for $4 billion after having already infused the company with $2 billion in emergency funding. Following the acquisition, Mr. Mozilo's exit package is estimated to be more than $70 million before considering perks such as country club memberships and the use of private aircraft.

With all of this money, Mozilo could easily afford to create the Mozilo Homeowners Trust to assist mortgagees in default. A two hundred million donation to fund the trust would still leave Mozilo with plenty of cash to lead a life of luxury.

But don't hold your breadth for Mr. Mozilo to follow Hillary's lead. So far, he has not been seen anywhere near Good Karma base camp.

Rick Wagoner, the CEO of General Motors gave a keynote speech at this year's Consumer Electronics Show, marking the first time ever a leader from the automotive industry joined the likes of Bill Gates, Steve Jobs and other tech luminaries to address this audience.
link

The modern automobile is a technology and electronics marvel. The electronics content of the typical car has increased by almost 50 percent over just the last five years. Cars now incorporate such dashboard standards as radios, DVD and CD players, GPS devices, navigation systems and ready-to-deploy airbags. Your car won't start, accelerate or stop without the aid of electronics.

In his remarks, Mr. Wagoner made note of one particular GM innovation which offers unprecedented consumer benefit. OnStar is the most comprehensive in-vehicle security, communications, and diagnostics system — available on more than 50 GM models. The transponder provides 24/7 connectivity to a live advisor, offering such services as vehicle diagnostics, navigation, automatic accident notification, emergency roadside services, stolen vehicle location assistance and remote door unlock.

The next step for OnStar is to use the transponder technology to connect cars with other cars... "to keep them from connecting physically." Today there are sensors and cameras to help keep drivers alert and avoid accidents when backing up, changing lanes or using cruise control. The transponder would do this and more --not only reducing accidents but also better managing traffic flow as your car would automatically communicate with a line of cars (transponder to transponder or V2V) a half mile ahead stuck in traffic.

From the almost here and now, Mr Wagoner then took a big leap into the future imagining a time when electronics and technology would allow for "autonomous" driving -- meaning the car would essentially drive itself. Wouldn't it be great, Wagoner proclaimed, if you could do your email, eat breakfast, apply make-up, read the newspaper or watch a video while commuting to work. Unfortunately, most of this occurs right now in cars unaided by technology, usually between the weekday hours of 6-9. And a low-tech alternative already exists. It has assisted commuters for about a century. It's called mass transit or commuter rail and bus lines...

Back to the here and now, GM is in sad shape today. The once proud industrial giant is about to lose market share leadership to Toyota and due to continuous red ink, its market cap has shrunk to under $13 billion. Will consumers really trust GM to provide the innovation necessary for "autonomous" driving? While OnStar is without a doubt a winner, the evidence is weak that GM could reliably and cost effectively provide the kind of next generation technology Wagoner invisioned.

Too Risky Even In God's Hands....

The Wall Street Journal reports that The West Adrian United Church of Christ (UCC) in Adrian, Michigan was denied a property insurance quote by Brotherhood Mutual Insurance Company because of the church's pro-gay stance. The insurer refused to provide even a quote when it learned that the church supports same-gender marriage and the ordination of gay clergy. Brotherhood felt that the church's pro-gay policy presented too high of a risk for property and liability coverage.

The pastor of the church, Rev. John W. Kottke, was simply trying to shop around among insurance carriers for better pricing and coverage. Fortunately, the church is already insured by another carrier, who has not yet decided to drop coverage or raise the church's premiums.

The Brotherhood Mutual Insurance Company was founded in 1917 and focuses exclusively on providing insurance to churches and related ministries. It claims to be one of the nation's leading insurers of churches, providing insurance to 30,000 congregations in 29 states. In an announcement related to the denial of the insurance quote, a representative of the insurer said that it avoids "knowingly insuring organizations that are at higher risk of loss based on the controversial positions that they have taken."

Was Brotherhood motivated by actuarial analysis or more deeply seated emotional prejudice? Its hard to imagine how to determine the relative risk of insuring one church versus another. How high is the risk of insuring this small church in Southern Michigan? Is the risk higher than insuring an African American Church in the deep South, where racism still persists and churches burn? Or, is the risk higher than any catholic church, given the wide spread sexual abuse by priests? How about an inner city church subject to regular vandalism? Hopefully, you get the point.

Despite its pro-gay stance, West Adrian UCC poses little risk to insurers. The church was founded in 1836 and has about 100 members. It is located among the farmlands of Southern Michigan, about an hour drive from Toledo or Battle Creek. The church's stated mission is to offer "...a safe and welcoming place of worship, where new ideas may flourish and take root in the rich soil fed by tradition."

One of the more popular congregational activities is the blue grass jam held once a month on weekends. The lively folk event features an extensive array of acoustic instruments including: banjo fiddle, guitar, mandolin,accordion, auto harp, dulcimer, harmonica, resonator guitar, saw and ukulele.

All are welcome to play along or listen. At your own risk of course. link

Pepper...and Salt

Courtesy of the Wall Street Journal

A Smart Choice?

I admit to having a sweet tooth and was happy to receive a jumbo bag of Raisinets from Santa in my stocking. I have opened the bag judiciously over the last couple of weeks being careful not to consume the entire contents in one sitting. I now know the promotional copy on the bag very well. My reaction -- Nestlé is one smart marketing company!

Raisinets are billed by Nestlé as a "Deliciously Smart Choice". In other words, if you can't position Raisinets as a healthy food, then you can do the next best thing -- position the chocolate-covered-raisins as the best choice among a poor set of choices. Clever!

The packaging describes Raisinets as being made from raisins "happily raised in the lush vineyards of California. Nurtured with lots of sunshine...." And, Nestlé reminds you that "The USDA Dietary Guidelines recommend eating 2 cups of fruit everyday... and each serving of Raisinets comes from 1/2 cup of grapes... Raisinets are also a natural source of antioxidants which help maintain body health."

What Nestlé doesn't promote are the mandatory nutritional facts, which require much closer inspection of the packaging. Each serving of Raisinets contains 5 grams of artery clogging saturated fat (25% of the daily limit), 27 grams of sugar and 190 calories. The high saturated fat content in Raisinets comes from the milk chocolate. Raisins are about 60% fructose sugar because they are dried grapes. If you are hungry enough to eat the whole bag (which doesn't seem too outlandish since the bag only contains 11 ounces) you are eating 7 servings which provides 35 grams of fat, 189 grams of sugar and 1,330 calories. Just to put this in context, the average recommended daily calorie intake is only 2000 calories!

Raisinets may be a "smart choice" versus M&M's or Skittles. But the smartest choice would be to skip the candy altogether and grab a bunch of grapes instead. With grapes, you'll get an equivalent boost of antioxidants, but only half the sugar content, none of the saturated fat and about 150 calories. But, don't look to Nestlé to tell you this.

It shouldn't surprise you that Nestlé believes, "as a general rule, legislation is the most effective safeguard of responsible conduct". It says so right on their corporate website. This means that the company will push marketing to the limits of the law even if they extend beyond nutritional common sense. I'm all for life's simple pleasures -- including junk food now and then. But I don't need a savvy marketing team to try and convince me that I am making a healthy choice, when in fact I am not.

Join him in prayer or RUN FOR THE HILLS!

If you think or say bad things, will they come true? In the case of ultra-conservative, religious broadcaster Pat Robertson, it depends. It depends first on whether God planted these thoughts in his head and second, on whether God intervenes sometime later on.

As part of an annual tradition on his "700 Club" broadcast, Robertson said that based on what God personally told him, 2008 will be a year of violence worldwide and a recession in the United States, followed by a major stock-market crash by 2010. Given the state of affairs in Iraq, Pakistan and the rough start the US stock market got off to, even a mere mortal of average intelligence could safely make these same predictions. The likelihood of a stock-market crash in 2010 is harder to gauge given that it is 24-36 months away. But of course, all of this can be averted if sufficient numbers pray to Robertson's one and only true God.

Just a year ago, Robertson predicted that a terrorist act, possibly involving a nuclear weapon, would result in mass killing in the United States. Noting that it hadn't come to pass, Robertson said, "All I can think is that somehow the people of God prayed and God in his mercy spared us."

Since God will not confirm or deny any of this, Robertson is off the hook. If this year's prediction comes true, he's right. If the prediction doesn't come true, then God must have intervened. Accountability has never been a strong suit for Mr. Robertson. Here is one of the many offensive remarks he has gotten away with:

"Just like what Nazi Germany did to the Jews, so liberal America is now doing to the evangelical Christians. It's no different. It is the same thing. It is happening all over again. It is the Democratic Congress, the liberal-based media and the homosexuals who want to destroy the Christians. Wholesale abuse and discrimination and the worst bigotry directed toward any group in America today. More terrible than anything suffered by any minority in history."

After having been fired by CBS Radio for comments about the Rutgers women's basketball team, at least Don Imus had the courage to admit he made a mistake and apologize before returning to the air. Even Howard Stern had the decency to retreat to Sirius Radio so has to put a media boundary around his offensive behavior. But not Pat Robertson -- his broadcast airwaves are protected by God no matter what he says.

The 700 Club is a live television program that airs weekdays on The Christian Broadcasting Network. On the air continuously since 1966, it is one of the longest-running programs in history. Hosted by Robertson, The 700 Club is a mix of news and commentary, interviews, feature stories, and Christian ministry. Seen in 95 percent of the television markets across the United States, the program is carried on ABC Family Channel cable network and is seen daily by approximately one million viewers.

The international reach of Robertson's broadcast is frightening. The international editions of The 700 Club have been viewed in more than 70 foreign languages, can be seen in more than 200 countries, and are accessible throughout the year by more than 1.5 billion people around the world. Imagine what all of these people are thinking after hearing one of Robertson's more controversial broadcasts.

While Robertson's broadcasts lack the action-oriented, call to arms of the typical terrorist broadcast, they are harmful nonetheless. Pat Robertson speaks as if he represents the majority of Americans. But he does not. Depending on how far right they lean, the Religious Right makes up anywhere between 15 and 25% of the voting population. Thankfully, most Americans are moderate, sensible and tolerant. Unfortunately, this voice of moderation is lost on the airwaves. Through razor sharp organizational skills and finely tuned marketing messages, the religious right dominates like the bully that it is.

Why is it easier to restrict the words of Howard Stern or Don Imus when Robertson's words are just as offensive? His broadcasts also hold the potential to harm especially those remarks that help inflame anti-American sentiment around the globe.

This year, I predict that Pat Robertson will be taken off the air. Now, join with me in prayer to the God of your choice and just maybe this will happen.

H is for Hedge Fund

These days, Harvard University looks more like a sophisticated hedge fund than it does an institution for higher education. Its massive endowment, which is now close to $35 billion, earned a 23.0 percent return during the fiscal year ending June 30, 2007. The size of the Crimson endowment puts Harvard in a class by itself. Number two ranked Yale has an endowment of $22 billion -- more than a third less than its Ivy rival.

There are many points of view about what Harvard should do with all of this money. The most popular choices appear to be: 1) eliminate tuition for all students; 2) raise the hourly wage for employees of the Harvard Corporation; and 3) self-fund more faculty research. These are rather obvious and uninspired ideas. Here is a big idea with a bit more impact and creativity.

Harvard should acquire one of the top rated, but chronically underfunded, historically black colleges. Most of these black colleges are in desperate need of additional resources to fulfill their academic and social commitment. Spelman and Morehouse -- two well known, resource rich and highly rated colleges whose student population is predominantly African American -- are the exceptions to this rule. Spelman and Morehouse have sizable endowments and the support of well-heeled celebrities such as Oprah Winfrey, Bill Cosby and Spike Lee. The same cannot be said for other historically black colleges such as Clark Atlanta University.

Clark Atlanta faces the more typical financial challenges associated with these small colleges. Its endowment is tiny -- only $40 million. The college itself is small -- 235 faculty members and 4275 enrolled students. With an endowment less than one-tenth of a percent of Harvard's, Clark Atlanta lacks the scale, resources and momentum to ever propel itself into financial prosperity.

Despite these challenges, Clark Atlanta is a good school with committed students, faculty and administration. I saw this first hand when I served as an advisor to the business school. Imagine what a school like Clark Atlanta could do if it benefited from the Harvard resource base.

Clark Atlanta could thrive as a "tuck-in" acquisition for Harvard. Why not imagine Clark Atlanta as another Radcliffe -- uniquely focused on its mission of educating African Americans, while taking advantage of Harvard's vast resources, infrastructure and best practices. If the term acquisition scares you, then how about a strategic alliance or an outright gift from Harvard to Clark Atlanta.

Such an acquisition or alliance is not as outlandish as it seems. Schools like Clark Atlanta serve an important and unique societal purpose that Harvard on its own would never be able to fulfill. In partnership, just imagine what Clark Atlanta could do with say a $1-2 billion investment from Harvard. Clark Atlanta could do what Harvard is considering doing -- eliminate tuition, pay staff more and fund more research -- but with a far greater societal impact than anything that might happen up north in Cambridge.

There is a big difference between Berkshire Hathaway (the investment company controlled by investor Warren Buffet) and the Harvard endowment. Both are professionally managed investment portfolios with public company holdings, emerging-market equities, commodities, stocks, real estate, high yield assets and so on. The big difference is that Berkshire Hathaway exists to create value for its shareholders, while Harvard exists to serves a much higher calling. Unlike Berkshire Hathaway, the financial value of the Harvard endowment is a means not an end.

The H in Harvard should stand for higher education, not hedge fund investing.