August 7, 2008
Nancy Rogers and the DHL Contract: Politics in the Raw
Ohio State Attorney General Nancy Rogers has asked DHL and UPS to save records on their recent contract to have UPS handle DHL's North American air shipments. DHL is the American subsidiary of a German company, Deutsche Post World Net. Rogers, taking direction from Governor Strickland, is looking for an antitrust violation. The request is a clear prosecution threat aimed at stalling the contract and Democrats in the state can use it as a public claim that they are doing something to save the jobs.
The 2008 contract will eliminate 6,000 or so jobs at Wilmington Ohio's DHL Air Park, a privately owned airfield. At the air field, the night sorting operation of ABX Air and ASTAR Air Cargo (partially owned by DHL), will be eliminated. The issue has, of course spilled over into the Presidential race. Which candidate can save the jobs? John McCain's and his campaign manager, Rick Davis, aided the purchase of the Air Park by DHL in 2003. Can the Democratic tie the job losses to McCain? They are trying.
What a joke. Look at the history. Before the DHL purchase of the Air Park in 2003, DHL ran a smaller freight operation in northern Kentucky. With the merger, DHL brought at least 1,000 jobs to Wilmington it otherwise did not have. Local politicians were ecstatic and offer more than $400 million cash in business incentives to facility the move. A republican senator, Ted Steven, now under indictment for bribery, introduced crazy, protectionist legislation to stop the deal (DHL was German after all) and McCain, as Chairman of the Commerce Committee, supported efforts to defeat the legislation.
The problem? DHL is losing money hand over fist on its North American operations, $1.3 billion last year. It cannot continue. It's options? Leave the American market completely, handing operations over to UPS, or partner with UPS to stay in the American market, running trucks while UPS runs its air operations. The partnership is not and cannot be an anti-trust violation. Without the deal DHL probably leaves the North American market; with the contract DHL provides some competition to UPS. The Attorney General needs a memo on the "failing company" defense.
So Rogers, now a Democratic apparently is bolstering her new affiliation with a very political attack on the deal. There are four reasons she should not do so: 1) we have state anti-trust statutes but they are very lightly used in difference to the federal statutes and the superior expertise and resources of both the FTC and the Department of Justice; 2) a serious state prosecution will be very, very expensive and tax the limited budget and staff of the State Attorney General's department, and 3) antitrust statutes do not protect jobs (the reason for the investigation and hub hub) they protect the consumer, the folks who mail stuff, and attempts to keep their prices low, and 4) the case is a loser. The case will be a very expensive politically motivated prosecution that will last as long as November.
Harvard Endowment Shines. Oh the Irony!
The Harvard endowment returned seven to nine percent in the last fiscal year ending in June. The market? Down 12 to 15 percent. It was a stellar performance. Big gains came from treasurys, commodities (oil and gas, among others), and, horrors, hedge fund investments. So while Harvard academics rail against oil companies (they are evil) and hedge funds (same), their institution supports their life style on investments in both. The attack on hedge funds includes a theory that they return nothing to investors and as well as 1) increasing income inequality and 2) using anti-social short term trading strategies (they do not care about ____ [insert favored group here]). Moreover the academics have complained that the compensation paid the endowment managers far exceed that to Nobel prize winners and Deans on the faculty, even though those positions pay equal to or more than similar positions anywhere in the country. Anyone can be a Dean and (with a full professional development staff) raise a $.5 billion or so from rich alumni every five years -- try beating the market with $36 billion in hand every year. We in Ohio, of course, pay our football coach more than our endowment manager and it shows in the results.
GM Losing $1 Billion a Month
GM is losing $1 billion a month and the board reaffirmed its support for the CEO Robert Stempel. That's a pretty low bar. The company is running on its considerable cash reserves and will do so until it turns a profit or uses up all its cash. I am banking on the latter. At some point the board should consider, in the best interests of its shareholders dissolution. The board has a duty to consider whether dissolution will return more money to shareholders than running the cash dry and returning to shareholders --- zero.
August 6, 2008
Yahoo Recount Raises Questions
The recount in the Yahoo board of directors election more than doubled the "asbtain" votes for several of the inside directors, including the CEO. The asbtain votes are the only way to vote no on management sponsered proxies. The recount change is startling and should prompt an inquiry into how votes are counted at major firms -- something that has long been assumed and very rarely discussed.
August 5, 2008
Missouri will Come to Appreciate New InBev CEO
The new InBev CEO, Carlos Brito, is something rare in the United States -- frugal. Anheuser-Busch is a typcial American beer company with numerous perks for employees -- corporate jets, free beer, tickets to sporting events -- and high profile advertising -- NASCAR and draft horses. It is free spending largess. Brito says he doesn't want free beer from the company...he can buy his own beer. He does not have a personal assistant or a company car. He shares a desk with three other officers for pete's sake in an open office. No top floor office palace for him. I love this guy -- he may just save the company. The governor of Missouri, that was so threatened by his appearance on the scene, ought to get to know and learn for the guy. I wish he would buy an Ohio company.
August 4, 2008
Hedge Funds and Tough Times
Some are celebrating the troubles of some hedge funds in the current investment market. Their celebrations are false, however, as hedge funds, even though going through a difficult period, still seem on pace to beat common market indexes, which show larger losses. Moreover, some hedge funds, betting on the bear side have racked up huge gains. Show me any market index, even those in a sub-industry that can match that. The final irony is that financial institutions that need to clear balance sheets of bad debt are unloading the toxic stuff to -- you guessed it-- hedge funds that are better able to manage the trouble portfolios. Banks made loans they should not have and now are selling the loans for an excessive discount to hedge funds that can better manage them -- another version of buy high and sell low.
Boards and ClawBacks
Several boards of major financial institutions have made the decision not to exercise "clawback" provisions in CEO compensation agreements. The contracts permit boards to reclaim parts of a CEOs salary and benefit package if the CEO presides over periods of major financial losses. So far several boards have not exercised their clawback rights. This is a duty of care violation, but since duty of care violations are protected by the business judgment rule and by 102(b)(7), liability limitation clauses recovery by shareholders is unlikely. One wonders, however, if this might be the one modern case in which the old "waste" doctrine should work. It used to apply to cases in which boards wasted corporate assessed with no possible argument of corporate benefit. The doctrine once (no longer) applied to bonuses or other retirement benefits franted after someone had already retired. If applied it would defeat any defenses based on the business judgment rule and any 102(b)(7) clauses.