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.
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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.
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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.