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.