When the boss throws a tantrum

Image courtesy of Dan/freedigitalphotos.net

According to its own website, Murray Energy Corp. is the nation’s largest privately-held coal-mining company, “producing approximately 30 million annual tons of bituminous coal … [from] eight (8) underground and surface mining operations, plus 40 subsidiary and support companies.” The website also states it has “a support team of 3,000 hard-working, dedicated, and talented employees in six (6) states.”

Make that 2,844. Because on Nov. 7, 2012 – less than 24 hours after a valid election awarded another 4-year term to Democratic Pres. Barack Obama, CEO Robert Murray laid off 156 workers.

In doing so, according to the Washington Post, he offered this prayer:

“Dear Lord:

The American people have made their choice. They have decided that America must change its course, away from the principals of our Founders. And, away from the idea of individual freedom and individual responsibility. Away from capitalism, economic responsibility, and personal acceptance.

We are a Country in favor of redistribution, national weakness and reduced standard of living and lower and lower levels of personal freedom.

My regret, Lord, is that our young people, including those in my own family, never will know what America was like or might have been. They will pay the price in their reduced standard of living and, most especially, reduced freedom.

The takers outvoted the producers. In response to this, I have turned to my Bible and in II Peter, Chapter 1, verses 4-9 it says, ‘To faith we are to add goodness; to goodness, knowledge; to knowledge, self control; to self control, perseverance; to perseverance, godliness; to godliness, kindness; to brotherly kindness, love.’

Lord, please forgive me and anyone with me in Murray Energy Corp. for the decisions that we are now forced to make to preserve the very existence of any of the enterprises that you have helped us build. We ask for your guidance in this drastic time with the drastic decisions that will be made to have any hope of our survival as an American business enterprise.

Amen.”

Though Murray’s company offers very little public insight about company financials, he has had plenty to say about his political preferences. An article by The New Republic lays out his significant financial support for Republican candidates and his vehement opposition to Pres. Obama.

It also repeats the accusation that Murray compelled some of his workers to attend a rally/photo op for Presidential Candidate Mitt Romney in August. The validity of those accusations have been argued – in some cases by the same minors who made them in the first place, a retraction that brings no clarity whatsoever.

But Murray is perfectly clear: He laid off workers because he didn’t like the results of the election.

He implies the election will change the economics of mining coal. And to the extent that the Obama administration is increasingly aggressive about enforcing safety regulations and pollution regulations, he’s probably right.

But Murray declines to mention that the economics of coal mining are suffering even more under new competitive pressures from lower-cost, cleaner and newly abundant natural gas, according to a variety of analyses, including this from the University of Pennyslvania’s Wharton School of Business.

He also fails to mention that if mine regulators are a wee bit aggressive, it may have something to do with Murray Energy’s own safety record. In March 2012, it paid a $500,000 fine after acknowledging 17 out of 20 citations (3 of them deemed flagrant) in the wake of a 2007 cave-in that killed 9 people at one of its Utah mines, according to the St. Louis Tribune. And in September – less than 2 months before the election – it paid another $950,000 to settle another case stemming from the same disaster.

Coal mining is dangerous work, and it pays better-than-average wages, according to this document from the National Mining Association. In Ohio and Utah – where Murray’s post-election layoffs took place, the average annual pay is more than $70,000. Which means the annual cost savings from the layoffs will be in the ballpark of $13 million ([$74,000 + 20% for benefits]*156 workers).

That’s no small piece of change. But neither is the amount of revenue Murray Energy generates from coal. While the company doesn’t release such numbers, a simple calculation provides a useful revenue estimate. With bituminous coal selling for about $60 a ton, according to Fred Frailey in Trains magazine (who also makes a case for the impact of natural gas on coal profits), Murray Energy revenues on 30 million tons would be in the range of $1.8 billion.

So the layoff represents about 0.7% of revenue. And complete upheaval in the lives of 156 families.

It seems to answer the question: How much does it cost when a CEO throws a tantrum.

 

America’s distrust for big biz, big gov

The approval rating of Congress hit an all-time low in the months before the 2012 presidential election. And it’s not alone.

When asked “Do you approve or disapprove of the way Congress is handling its job,” just 10% of respondents said they approve, according to pollster Gallup Inc. That approval rating ties February 2012 as the lowest result Gallup has received in  the 38 years it’s been asking the question.

But there’s other news: In January 2012, Gallup asked people if they were satisfied with the power and influence of major corporations  in the United States. Only 30% answered yes – up one percentage point from the all-time low in 2011 of 29%. Clearly, a majority of people think corporations wield too much clout in policy and daily life. Right?

Unfortunately, the picture isn’t as simple as that. The question was asked as part of a political poll in which just 29% said they were satisfied with the power and influence of federal government. That figure was an all-time low, down from 31% in 2011.

 

Reprinted form Gallup. Click image for original.

But what seems really significant about the graphic is that this year represents the only time in the 11-year history of this particular survey in which the perception of government was worse than the perception of big business. Perhaps it’s the beginning of a trend.

But remember, this survey is taken in a political context – and during the heat of a political season in which the role of government is the dominant issue. And the results broke cleanly along political lines. Republicans tend to be more dissatisfied with the power and influence of the federal government (84% dissatisfied) and less dissatisfied with that of  big business (48% dissatisfied). Predictiably, Democrats tend to offer the opposite results (47% dissatisfied with the federal government and 71% with big business).

So once again, it all comes down to the independents. What do they say?  They hate everything (75% are dissatisfied with the federal government and 71% with big business.)

Here’s the big picture. The Gallup survey clearly demonstrates that our distrust for the largest institutions has grown over time. Except, perhaps, for the political parties that spend so much time and money dividing us.

 

How Bank of America Execs Hid Losses—In Their Own Words

June 7: This post has been updated and corrected.

When Bank of America announced it was buying Merrill Lynch in September 2008, bank execs told their shareholders that the merger might hurt earnings a touch. It didn’t turn out that way. Losses at Merrill piled up over the next two months, before the deal even closed. Yet the execs kept painting a prettier picture to shareholders — even though it turns out they knew better.

As the New York Times detailed this morning, a brief in a new lawsuit filed in federal court in Manhattan recounts sworn testimony and internal emails in which execs admitted to giving bad information to shareholders and that they had worried about the legal ramifications of doing so.

According to the filing, Bank of America’s then-CEO Kenneth Lewis admitted in a deposition that what he told shareholders about the financials of the merger was no longer accurate on the day they approved it.

We’ve pulled out the most revealing parts of the suit, which tell the story of how the deal went down.

On Sept. 15, 2008, Bank of America announced its agreement to buy Merrill Lynch. In the press release announcing the deal and other presentations, Bank of America said it would cause a 3 percent decrease in earnings in 2009, and that by 2010 the deal would break even or do better.

In October, concerns started to emerge about Merrill’s financials. As it became clear the company was going to lose $7.5 billion that month, one exec emailed another the numbers with the message “read and weep.”

Merrill kept losing money in November. Late that month, Bank of America ordered Merrill to sell off assets to try to stabilize its finances:

After current Bank of America CEO Brian Moynihan admitted in a deposition that this sale meant the deal was less valuable to shareholders:

On Dec. 1, Bank of America issued a $9 billion debt offering. Publicly, they said this was “for general corporate purposes.” But private communications showed that they were trying to raise money to cover Merrill’s losses:

Bank of America’s then-treasurer, Jeffrey Brown, wrote in emails just before the shareholder meeting that they needed to disclose that the Merrill losses were behind the debt offering. He also testified that he told other execs they could be committing a criminal offense by not disclosing the losses:

On Dec. 5, Bank of America shareholders met to decide whether to approve the merger. They questioned Lewis about the financial impact of the deal, and he reassured them:

That day, shareholders voted to approve the merger.

In his deposition for the lawsuit, Lewis said that what he told them was not accurate. Bank of America had already revised their numbers to reflect Merrill’s losses:

Just days after the deal was approved, on Dec. 12, a law firm for Bank of America prepared documents making the case that they could back out of the merger, based on Merrill’s new financial woes:

On the 17th, Lewis took that argument to then Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, who, according to the lawsuit, were stunned by Merrill’s losses:

According to the suit, Lewis raised the possibility of a bailout then:

But it wasn’t until January that shareholders — and the public — learned how bad things were. Bank of America stock dropped precipitously, and taxpayers ultimately padded the bank’s bailout funds with an extra $20 billion to cover the losses. The SEC has actually already settled its own charges against Bank of America over misleading shareholders on the deal. The bank paid $150 million — and didn’t admit any wrongdoing.

Bank of America didn’t comment to the Times on the new lawsuit, and didn’t immediately respond to a request for comment from us.

Update (6/7): Kenneth Lewis and Bank of America have also filed motions in the suit. Lewis’ motion states that he relied on Bank of America’s law firm’s recommendation that disclosure of Merrill’s losses was not required. Bank of America’s motion asserts that the plaintiffs cannot tie the losses they claim to the non-disclosure.

Correction: This post has been corrected to show that Kenneth Lewis did not say the words “no longer accurate;” instead, it was attorneys paraphrasing his position.

 

FB FU: Facebook’s unfriendly IPO

Photo credit: Freedigitalphotos.net

Big money has done it again. Since 2008, Wall Street banks have been trying to convince the public that the financial collapse was just an aberration, and that less government oversight of banking practices will be better for everyone.

Just as the public, with its notoriously short memory and forgiving attitude, was beginning to let bygones be bygones, Fac

ebook and investment bank Morgan Stanley have reminded us that allowing big money to regulate itself is a lot like … well, er … putting your money into the hands of an irresponsible, greedy stranger.

The story is that Facebook’s highly publicized initial public offering released stock at the price of $38 a share; the initial flurry quickly raised that price to as high as $45. While large, institutional investors reportedly kept their money in their pockets, individuals bought up a good percentage of the available stock. And within two days, the price had dropped almost 20%.

Only then was it disclosed certain large investors may have received verbal guidance that Facebook was about to deliver a big disappointment in its quarterly earnings. No wonder they sat out – satisfied to watch as the suckers who didn’t have access to the relevant financial information tossed their cash into a stock that was now seen as overpriced and certain to be a bad

short-term investment.

Eventually the large investors will buy up Facebook stock. Experts are speculating that will likely happen when small investors get scared and disgusted and start dumping their $38-a-share purchases at prices as low as $22.

The comeuppance is that Facebook and its lead underwriter, investment bank Morgan Stanley, now face a series of lawsuits – filed less than a week after the yawn-inspiring IPO – for allegedly failing to share material information equally with all investors.

There is plenty of irony in this episode. Facebook has been perceived as among the most egalitarian of media, where individuals were assumed to be in charge. Facebook users who bought stock hoped to leverage their own passion for social media into a solid financial gain. Instead they’ve been exploited, just as they are every time Facebook users their data to throw unproductive advertising at them.

It’s also ironic because Wall Street’s big money machine has spent the last four years trying to convince the public that government-imposed constraints were a primary cause of the financial meltdown and sluggish recovery. But like the mortgage crisis and the more recent explosion in banking fees, this most visible IPO in history demonstrates another dynamic – that Wall Street’s true concern is to take care of its own, even at the expense of its customers.

For its part, Morgan Stanley claims it did nothing wrong, and that it followed the same procedures it follows for all IPOs. If that’s the case – and it certainly may be – then it may be time for the Securities Exchange Commission to take another look at the regulations. And it’s certainly reasonable for small investors to question whether they can ever get a fair shake with Wall Street.

For everybody else, it’s simply a fair reminder that you don’t leave the fox in charge of the henhouse.

 

Obama: Government is not a business

Finally, somebody with a really big soap box has taken on the fundamental assumption of the cult of capitalism.

Mitt Romney’s primary campaign position has been that his business experience will allow him fix what’s wrong with the federal government. While Gov. Romney may be a well-qualified presidential prospect, treating government like a business is unrealistic, simplistic and likely to exacerbate the nation’s largest societal problems.

When taking questions at the close of the NATO Summit in Chicago earlier this week, President Obama concisely confronted the assumption that what the United States needs is a government run like a business. As quoted in a variety of media, including this ABC news report, Obama said:

“Understand that their [business executives'] priority is to maximize profits. And that’s not always going to be good for communities or businesses or workers. And the reason this is relevant to the campaign is because my opponent, Governor Romney, his main calling card for why he thinks he should be president is his business experience. You know, he’s not going out there touting his experience in Massachusetts. He’s saying ‘I’m a business guy. I know how to fix it.’ And this is his business…”

Obama continued, by saying, when one is president…

“…as opposed to the head of private equity firm, then your job is not simply to maximize profits, your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who get laid off and how are we’re paying for their retraining…. My job is to take into account everybody, not just some.”

While it’s the first time Pres. Obama may have said it so clearly, it’s not the first time the point has been made. In a February Wall Street Journal commentary, Robert Reilly, a former Reagan special assistant, wrote:

When Mr. Romney was running for president four years ago, he said in an interview that the first thing he would do in the White House would be to bring in some business consultants. In other words, Washington is a management problem.

This is a profoundly mistaken Republican notion that goes back at least to Herbert Hoover, a successful mining engineer, businessman and progressive politician who was an advocate of the “Efficiency Movement,” an attempt to manage government better.

…Mr. Romney has a tendency to treat his business autobiography as a policy prescription… Like Hoover, Mr. Romney wants to be president because he thinks he can manage things better. But my advice to any person who seeks to move American politics through his ability to succeed in business is: Stay home. It will be better for you and for your country.

Show us your backbone Wal-Mart; yeah that’s what we thought

In 2005, according to a New York Times report, top officials at Wal-Mart were alerted to the possibility that its Mexico subsidiary had made widespread use of bribery in efforts to gain marketshare. Wal-Mart de Mexico is the company’s largest foreign subsidiary.

Such activities, they were told, could be in violation of both U.S. and Mexican laws.

Wal-Mart looked into the matter; here, according to The New York Times, is what investigators learned:

They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark.

At that point, Wal-Mart leaders might have chosen to disclose the problem. It may have lead to prosecution in Mexico and financial consequences in the United States. It might have generated embarrassing headlines for awhile.

But Wal-Mart is a big company. It employs more than 2 million people; it would be easy to make the case that employees sometimes do things that are against the rules and top executives can’t be expected to know everything that’s going on all the time.

The disclosure wouldn’t likely have brought much economic hardship to the company or its stakeholders; Wal-Mart’s worldwide operations that year generated $10.2 billion in earnings. (Just 6 years later, according to its current annual report, earnings have grown more than 50% to $15.8 billion.) Its credit is pretty good.

So the disclosure would have been an unpleasant short-term blip. It might have even done some good, such as demonstrating the sincerity of the company’s sweeping  Global Ethics promise:

The Global Ethics Office is responsible for sustaining Walmart’s culture of integrity. This includes developing and upholding our policies for ethical behavior for all of our stakeholders everywhere we operate.

This would be meaningful because Wal-Mart makes a lot of pledges – about things like diversity, sustainability, treatment of employees, etc. – that are sometimes viewed with skepticism by outsiders. For instance, its Women’s Economic Empowerment Initiative was announced in late 2011, just a few months after the U.S. Supreme Court neutered the arguments of a high-profile, decade-long effort to bring a class action suit against Wal-Mart for discrimination against women.

Let’s be realistic: A company that has spent 50 years becoming the world’s largest retailer is going to have accumulated a lot of enemies. It’s going to be a target for sour grapes and discontent.

So at this moment of moral fiber, when Wal-Mart leadership had one of those defining opportunities to choose the right thing over the expedient thing, which way did they go?

You already know the answer to that; if they did the right thing the story would have been long-forgotten by now. Instead, according to The New York Times, they essentially allowed the Mexican subsidiary to investigate and exonerate itself.

Only in late 2011, when Wal-Mart reportedly learned that The Times was onto a story about corruption in Mexico, did it reveal to the U.S. Justice Department that it was conducting an internal investigation, The Times reports.

Better late than never? Not everybody would agree.

 

 

AT&T data: You get what you pay for … eventually

Photo: Danilo Rizzuti / FreeDigitalPhotos.net (and yes, we're aware he's not actually using a smartphone)

Wireless providers are beating each other up to claim the best wireless networks, the fastest download speeds and the most glamorous smartphones, connected tablets and other bandwidth-gobbling devices.

What they’re really selling is dependency on large amounts of data.

In what may be the worst-kept industrial secret of all time, the wireless vendors – AT&T in particular – are making promises they can’t keep.

Since even before it helped introduce iPhone 1.0 in 2007, AT&T has been criticized for a balky data network and slow download speeds. In 2009, it even asked customers to voluntarily back off their use of data after conceding that its network was overwhelmed by demand for bandwidth.

But that hasn’t slowed down AT&T’s promotional efforts. It’s still pushing smart phones like Wal-Mart pushes cheap crap from China. By at least Wal-Mart has shelves full of crap.

AT&T has oversold its bandwidth, and deals with that reality by throttling the download speeds of 17 million customers – half of its smartphone users – who purchased unlimited data plans, according to Associated Press.

In effect, it’s slowing down the rate at which customers’ phones can access information – sometimes to a crawl that makes it impossible to use such popular functions as navigating, streaming online music or downloading e-mail. In some cases, according to varied reports, unlimited users are being throttled well before the threshold of lower-cost limited-data plans.

All the major wireless  vendors have made adjustments to the way they charge for bandwidth, but AT&T’s particular approach – selling unlimited data plans and then simply making them too slow to utilize – has created outrage.

Some customers are complaining loudly about it. And while AT&T’s user agreement apparently forbids these complaints from being consolidated into a class-action suit, some customers are taking AT&T to court. In one such case, the claimant was awarded $850 – 10 months of $85-a-month service.

The total was far less than the $10,000 the claimant asked for. But it was enough to send a message: When AT&T suggests that its technology lets you rethink the possible, it’s really just intended as a brain exercise.

 

Photo credit: Danilo Rizzuti / FreeDigitalPhotos.net

Apple iPad 3, iPad, iPad, iPad, iPad

The Onion, a national humor newspaper/website reports that by simply writing about the iPad 3, it’s possible to substantially increase website traffic and, therefore, impression-based advertising revenue:

According to industry sources, this news article is generating a veritable bonanza of highly lucrative advertising revenue by mere virtue of the fact that it mentions Apple’s new iPad. “Current estimates show that the particular article I am being quoted in at this very moment began to accumulate thousands of dollars in ad-based profits as soon as the words ‘new iPad’ appeared in the headline,” said market analyst Jonathan Bowers, who single-handedly and out of thin air created cold hard cash for a media organization simply by adding that the new Apple iPad will feature a high-definition screen and an improved processor.

You’d have to be cynical to buy it. But then again, the Onion is nothing if not cynical.

Yahoo’s new idea: No new ideas

 

Photo courtesy of Stuart Miles, Freedigitalphotos.net

Yahoo, out of original ideas to end its losing streak, is now turning to shakedowns of online competitors. So says Business Insider, in its commentary on reports that Yahoo is preparing to sue Facebook for infringement of up to 20 Yahoo patents on technologies involving “advertising, the personalization of Web sites, social networking and messaging.”

It’s been a long time since anybody had much good to say about Yahoo’s direction and long-term prospects. Google has been shedding its “Don’t Be Evil” philosophy in a flurry of impressive – if not always beloved – moves that make it ever-more valuable to marketers.

And Facebook has been figuring out more and more ways to make money by increasing its presence in the everyday lives of internet users. Even frumpy old AOL has dug in hard in an effort to corner the hyperlocal market – though its Patch.com unit is said to be losing as much as $130 million a year and few observers give it much chance of success.

Meanwhile, what has Yahoo done? While it’s market share in online ad sales continues to decline, executives seem to have spent the last 3 years trying to sell the company and not much more. yippee.

One for the big guy: Facebook awarded $75k from schmoe

Paul Ceglia is a nobody who become a short-term somebody by claiming that Mark Zuckerberg “had signed over 84% of Facebook to him in exchange for $1,000,” according to PaidContent.

He even produced a contract to prove it. In court the contract was eventually ruled a fake and the case was tossed out. Ceglia was ordered to pay $5,000 in damages.

Now in an ironic epilogue, as Mark Zuckerberg prepares his company to go public – which will turn him into an overnight billionaire – Ceglia has been ordered to pay $75,000 of Facebook’s legal bills in the case.

While Ceglia went through a series of lawyers in trying to push the bogus case, Facebook’s lawyers were charging hourly rates of $450 at the low end and $925 for the big guns.

Not surprisingly, Ceglia claims the payment will be a hardship.

There’s a moral here: You don’t take on big business unless you’ve got the goods. And even then – though Ceglia’s case has nothing to do with this second point – it’s going to be expensive, slow and risky.