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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Corporate governance
September 16, 2013 at 10:52 AM

Why companies are keeping so much cash

Since the end of the recession, U.S. public companies have amassed record amounts of cash. They’re not using it to hire people or, in many cases, to develop new products and services. Instead, it is sitting in corporate treasuries — or more likely, bouncing around the shadow banking system. Juan Sanchez and Emircan Yurdagul of the Federal Reserve Bank of St. Louis have a new paper that seeks to answer the question, why? I warn you, it’s worky going.

Here’s the shorthand: This is a new phenomenon.  In 2011, companies were holding four times as much cash as in 1995 and 11 times as much as in 1979. The reasons don’t appear to be correlated to research and development, worries over taxes if foreign earnings are repatriated, or volatility in sales and cash flow. The two researchers find a closer tie to uncertainty over productivity and policy.

The first is closely tied to the Great Recession, or, as they write, “the idea is that firms learn from experience.” Companies that entered the Panic of 2008 with a strong cushion survived and performed well. If every Joe and Jill Schmo that answers an online poll believes the financial system remains dangerous, it’s a safe bet that corporate leaders do, too.

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March 18, 2013 at 10:29 AM

‘In our face’ capitalism

The newest hire in the mail room of Boeing’s headquarters could have done as good a job as Jim McNerney last year, as the radical outsourcing he oversaw and encouraged led to the grounding of the 787 Dreamliner. Even so, Boeing’s lapdog board gave McNerney a 20 percent raise, to $27.5 million. At least Jamie Dimon, CEO of JPMorgan Chase had his pay cut in half, to a pauperish $11.5 million for the “London Whale” trading debacle. But a new Senate report shows how Dimon, supposedly America’s smartest and most prudent banker — the guy who bought Washington Mutual for chump change — is presiding over a financial system every bit as dangerous as the one that brought on the Great Recession.

Gretchen Morgenson of the New York Times writes:

Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.

Why do Dimon or McNerney still have jobs? Because the cult of the imperial CEO is alive and well, despite the executive malpractice and outright fraud that brought on the 2000 recession (Enron, HealthSouth, Tyco, etc. etc.) as well as the financial crash of 2008. They do whatever they want. Politicians quail before their contribution-bearing lobbyists. Boards are worthless. The message to average Americans who lost jobs, net worth and economic mobility: In your face.

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Comments | More in Aerospace/Boeing, Banking, Corporate crime, Corporate governance, Executive compensation, JPMorgan Chase, Washington Mutual

February 28, 2013 at 10:17 AM

Boeing’s apology tour

Boeing Commercial Airplanes chief Ray Conner traveled to Japan and reportedly apologized to airlines for continuing problems with the 787 Dreamliner. “I want to first apologize for the fact that we’ve had two incidents with our two very precious customers, ANA and JAL,” Conner said. This is a charming and salutary Japanese custom that we should adopt.

I’m waiting for the Jim McNerney apology tour in America. It might go something like this: “To Boeing’s shareholders, customers, vendors and, especially, employees, I’m deeply sorry that we — and I regret to say this includes my predecessor, St. Alan Mulally — attempted to build the world’s most advanced airliner on the cheap, with an untested and reckless outsourcing program that led to repeated delays, finally grounding, and putting the very future of the company at risk. I deeply regret the weak corporate governance that allowed this, and as a result I will give up the title of chairman to an independent director. I will ask all the directors to resign and appoint only those who pass a medical exam that shows they have a spine. I will give up all of my compensation for the past five years and if the 787 isn’t flying flawlessly this year, I will resign as chief executive…

“To our employees in the Puget Sound, I owe a special apology. I’m sorry we moved the headquarters to Chicago. The hot dogs are superior, but otherwise the company’s top executives are too far removed from the critical commercial airplane business and from Asia. I’m sorry we made a hash of the outsourcing that you now have to fix. I’m sorry we tried to deflect accountability that rightly rests with management decisions by blaming our unionized workers and set up an assembly in South Carolina to punish and intimidate them…” (bows deeply here toward machinists, engineers and technical workers, whispering reverently, “No nerds, no birds” several times.)

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August 29, 2012 at 9:50 AM

What is the Port of Seattle thinking?

As we head up to Labor Day, it’s good to know that at least one guy has a job. Two, actually. Tay Yoshitani has his position as chief executive of the Port of Seattle, paying almost $367,000 a year. Now he’s also a board member of Expeditors International, making another $230,000.

Not surprisingly, the side gig is being questioned by 13 King County legislators. In a letter to port commissioners, the lawmakers state, “It appears to the public that Mr. Yoshitani may directly and personally benefit by giving Expeditors’ customers a competitive advantage over other Port of Seattle customers,” the letter states. “[A]s Port CEO he has the power to prioritize his personal profit over the public mission of the taxpayer-supported Port of Seattle.”

The port’s response? No problem. Yoshitani’s contract allows him to serve on corporate boards on his own time. And, according to Commissioner Tom Albro, the Expeditors position “was reviewed by the port’s general counsel to ensure compliance with the port’s Code of Conduct for employees and for any potential conflict of interest before he joined the board.” I’m not a lawyer, but this doesn’t pass the smell test, much less the common sense test.

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Comments | More in Corporate governance, Port of Seattle drivers shutdown, Ports of Seattle and Tacoma

April 11, 2012 at 10:20 AM

ALEC ropes in surprising support for extremist agenda

Am I the only one who was surprised to read in this morning’s newspaper that the Bill and Melinda Gates Foundation, the shining star of progressive Seattle’s non-profits, had been giving money to the ultra-conservative American Legislative Exchange Council (ALEC)? According to SourceWatch, “ALEC is not a lobby; it is not a front group. It is much more powerful than that. Through ALEC, behind closed doors, corporations hand state legislators the changes to the law they desire that directly benefit their bottom line.”

ALEC is known for writing right-wing legislation that has been voted into law around the country, including the infamous “Stand Your Ground” laws, various voter suppression bills, anti-environmental measures and efforts to privatize public education. Not surprisingly, the Koch brothers are huge supporters. This is hardly the company one would expect the Gates Foundation to keep.

Gates and some other corporate sponsors have backed away from ALEC (as are Kraft, McDonalds, Wendy’s and Coca-Cola. Amazon.com was apparently a member as late as 2011. ALEC’s “private enterprise board” includes Bayer, GlaxoSmithKline, Wal-Mart and Exxon Mobil. The site ALEC Watch also lists Microsoft and Boeing as members.

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January 10, 2012 at 9:40 AM

Did Apple change its core values?

Apple’s new CEO, Tim Cook, has been awarded compensation of nearly $378 million. This is 376 million times the amount made by the late Steve Jobs, who famously worked for $1 a year. To be fair, Cook will take home a $900,000 salary. The remainder is in a one-time award of stock, half of which vests in 2016 and the remainder in 2021. And Jobs held a large amount of Apple stock from the 1990s.

Still, it’s the largest stock award given by the company in a decade and Cook is no Steve Jobs. The latter showed the best in a chief executive, which involved presiding over a fast-moving, innovative, accountable company that kept beating its rivals and expanding market share and value. And make no mistake, this was a culture and list of accomplishments set from the top. Cook will have to work very hard not to become just another American CEO looting the corporate treasury.

Shareholders don’t seem to mind so far; the stock was up in today’s rally. In theory, the compensation is an incentive for Cook to keep lifting the value of the company. But even if he doesn’t, Cook ends up with a tidy paycheck.

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