Satyam Computers and Corporate Governance-N'ere The Twain Shall Meet

Update 9 p.m (EST): Few of Satyam's strategic clients are looking to re-evaluate their contracts with Satyam as "they are no longer satisfied with the intent and focus of the company."


India has been in the news a lot lately....unfortunately for all the wrong reasons...here is one more...

Satyam Computers, an Indian computer services firm with ADR's listed on the NYSE, is facing a a severe governance fiasco. Satyam recently announced its decision to buy controlling stakes in two infrastructure companies in which the chairman and promoter of Satyam had sizable stakes. Founders of the Indian company Satyam held as much as 30 to 35% in the infrastructure companies - Maytas Infra inc and Maytas properties. According to analysts, the deal was not only overpriced (at $1.6 billion) but was also questionable on the grounds that the businesses (computer services and infrastructure) were not complementary by any stretch of imagination.

Satyam faced its shareholders' ire and saw its ADR price drop 55 % to a 52 week low of $5.70.
You can see the price fluctuation in the last 5 days for Satyam especially a sharp dip to the $5 levels.



Of course, seeing the market reaction, Satyam has abandoned its acquisition plans...but not without some beating to its reputation. Ironically, the company had recently been awarded the coveted Golden Peacock Global Award for Excellence in Corporate Governance for 2008. If this is the kind of governance measures that a "top governance" company practices what about the others? I shudder to think......
Satyam now faces an inquiry from India's Ministry of Corporate Affairs into the board decisions behind this acquisiton plan. The Ministry of Corporate Affairs has become more stringent on Indian companies, with a recent proposal that would require all companies, whether public or private, to have atleast a third of their directors to be independent.

Satyam has had a bad year overall...in October of this year, Satyam was banned from carrying out an offshore work for the World Bank after news one or more Satyam contractors were accused of installing a spy software at the World Bank workstations. Satyam had been the vendor of choice at the World Bank for a long time.

The Satyam governance debacle could possible be a culture issue specific to India and maybe other South Asian countries. A sizable number of large multinational corporations in India have started as family owned businesses. Even after these companies are made public, they continue to be governed at the whims and fancies of the promoter family. Personal relationships drive many business agreements....

A case in point is the ongoing battle between the Ambani brothers who run the Reliance group of companies. According to Forbes Magazine, both the Ambani brothers figure in the top 10 richest men in the world. Rich they maybe, but unfortunately, as far as corporate governance goes, they lag far behind. Their ongoing personal feud scuttled Reliance Communications' potential merger with South African MTN Communications.

Lack of governance measures maybe the norm in India but there are some notable exceptions too...on top of the list would be Infosys Technologies or the ICICI Bank ....maybe a few others. There aren't too many of them but hopefully Satyam's governance fiasco will prove a lesson to family owned businesses.

Keep checking back for updates on the Satyam story...

Mad(off) Money !!

It's almost as if the plague hit Wall Street...first the credit crisis ( which of course was preceded by the subprime mortgage mess and followed by the current recession)and along its heels comes a ponzi scheme the size of Godzilla!

Much has been and will be discussed about Bernard L.Madoff and his mad ponzi scheme.
By some accounts,the $50 billion ponzi scheme created by Madoff can be labeled as one of the costliest financial frauds ever created by an individual.

As details slowly trickle in on the operations behind Madoff's ponzi scheme, i thought it would be worthwhile to go over some 'Do's and Don'ts' for avoiding a Ponzi Scheme.

• I found this general list on wsj.com

• According to this one which is a little more specific, investors should be on red alert when an investment manager asks for checks to be made out to him or his company.

• This is what the FBI has to say about ponzi schemes (scroll down on the FBI page till you reach 'ponzi schemes')- exercise due diligence and make sure you fully understand the investment before you invest the money.
  

• Another nugget of advice from the Asset Protection Blog- Obtain independent advice and turn your back on "guaranteed" profits if they seem unrealistic. And of course, the common refrain that should be applied in everything: If it seems too good to be true—it probably isn't true.

Oh and by the way, in case you were wondering where the "Ponzi" in Ponzi scheme came from, here is the lowdown- (courtesy Wikipedia).

" The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth."

Yahoo's 'Extreme Makeover'- Change in its Contentious Severance Plan

One of the primary criticism leveled against Yahoo, that had many shareholders up in arms during the Microsoft debacle was the fact that the company had a rock solid severance package in place to deter any potential takeover.

According to Yahoo's old severance plan, if an eligible employee’s employment with the Company is terminated by the Company without “cause” or by the employee for “good reason” within two years after a change in control of the Company, the employee would be eligible to receive severance benefits.

The benefits under the old plan related to medical, dental coverage, accelerated vesting of stock options and RSU’s, continuation of base salary for a limited period of time (maximum period of 24 months) etc.

After getting sued by angry investors over the protective nature of its severance plan, Yahoo has finally been forced to make changes to its current severance plan. In an 8-K filing yesterday,
Yahoo has sought to make some fundamental changes to its severance plans.

At the basic level, it takes away the Board’s ability to declare that a change of control event has occurred. Secondly, a Yahoo employee needs to show a material diminution in his/her salary or duties to claim severance benefits. Thirdly, a change in the Board composition will not constitute a change of control event.

A detailed reading of Yahoo's amended severance plan, revealed a very key statement that is hidden deep in Appendix B. It directly addresses the potential takeover of the company’s search business. In defining a Change of Control, the document states that , “ a sale of the Company’s search business shall not constitute a Change in Control ……”. What this statement essentially means is that in in case of a takeover of Yahoo’s search business, severance benefits related to a change in control situation will not automatically kick in.
This is a brand new statement inserted into the severance plan, seemingly to smooth the way for Microsoft to takeover all of Yahoo’s search business.

In effect, there seems to be an almost inevitable quality to the likelihood of a possible takeover of Yahoo’s search business. What do you think?

Note to Mr.CEO- "Do Unto Others As You Would Have Them Do Unto You"

The big economy news this past week was the total number of job losses in the economy- 1.9 million jobs lost year to date out of which 533,000 jobs were lost in November alone. (See graph below)




























To make matters worse, there have been reports of accelerated layoffs at companies in preparation for a bleak 2009.


The most obvious objective for such aggressive job cuts is cost reduction and a quick return to
profitability. But why are companies not looking at senior management job cuts or paycuts as a show of solidarity? The Europeans seem to have beaten the US to it. (UBS, Deutsche Bank and Barclays PLC have either pulled bonuses for top executives, or executives there have voluntarily forfeited them.)

At invESGuard, we pulled up a list of companies that have announced layoffs and analyzed any CEO paycut or salary review at the same company. Here's what we found:

1. Out of the 24 companies on our list, CEO's of only 3 out 24 companies (12.5%) announced a paycut. This does not include Citigroup CEO who has yet to announce the full extent of his paycut, or the Detroit Three who have outlined a conditional $1 salary for 2009 (contingent on being granted a Government loan).

2. The CEO of Hartford financial was given a $3.25 million bonus as part of a non equity incentive plan compensation.

3.Legg Mason CEO compensation includes a $1.9 million bonus.

4. Boeing CEO's base salary actually increased by $50,000.

Morgan Stanley CEO is one of the 3 out of 24 CEO's who has received a lower compensation during 2007 given the dismal company performance. However, a close look at the salaries of senior management at Morgan Stanley, reveals a different picture :
Mr.Scully (Co-President) made over $15 million
Former Chief Financial Officer, Mr. Sidwell was granted $14.61 million (including a cash bonus of $12.7 million owing to he retirement).
The new Chief Financial Officer, Mr.Kellheler made $21 million including a bonus of $6.9 million. Mr.Nides (Chief Admin Officer) made $6.33 million.
The total bonus paid to the 5 senior executives for 2007 totaled a whopping $35 million.
So much for the CEO pay cut!

One question that repeatedly comes to mind is- Do they even understand the true meaning of a bonus payout and the way that this is supposed to work?

The complete disregard with which CEO's refuse to even consider a paycut while the middle and lower management not just face paycuts but in most cases lose jobs, is completely ridiculous.

Even the Big Three Auto Industry Chiefs who have been before the Congress begging bowl in hand, have announced only conditional paycuts. That is, in return for the loans from the government, will they will accept a $1 salary for 2009.

Rep.Kanjorski rightly pointed out during the hearing, 'Instead of $1 salary for 2009, you should not be getting a greater salary that any of the successful Japanese auto executives as long as you are indebted to the United States. Until that time you should not be getting more than 20 times the salary of successful Japanese executives.'
Honestly, without the government's help, at least 2 of these auto companies would be broke and then the possibility of even earning that $1 would not exist. How ironical that no sweeping management concessions have been announced by GM when according to one news report, GM is not even replacing the batteries in its wall clocks!

Depressing as this news maybe, there have been a few bright spots:

1.In July of this year, the CEO of Midwest Air Group Inc. says he’s taking a 40% pay cut as part of the company’s restructuring, a plan that includes demands for even deeper pay cuts from union pilots and flight attendants.
2. The new AIG CEO accept ed a 1$ salary in return for government help.
3.Ky based Ashland's CEO has accepted a paycut for 2008.


If you know of any other companies that have made positive changes to Senior management compensation, drop me a line at tejus.trivedi@gmail.com

Auto Hearing Live Blogging- Detroit Three Hearing December 5.

9.48 a.m.
Mr. Michael:

"Doubt that financial institutions would want to lend (to automotive industry)"
We have to worry about oversight and accountability"

Mr. Waters
Concerned about plan submitted, how will it affect jobs?
What impact will the reduction of dealerships will have on jobs in the regions where these dealers are present.

Mr. King
If we knew where the money is going, there would be reasonable assurance that the plan might just work.
What are the chances that this plan will work?

Mr. Watt
Talked to various dealers and feels there is a serious problem for example that one man did not sell a single car in October of this year.

Mr. Manzullo
The plan should address how will the Detroit Three will try to increase customer demand for cars. None of the plans address this critical issue.

Mr. Biggert
"We don't know whether granting your request, means you will not be back here in a few months time."

10.02 a.m.
Mr. Sherman
"We need to put tough standards in the bill." In order to minimize the number of executives from other industries to come to the Congress for money.
"...needs to provide the assurance that you cannot close plants without approval from the" (administration)

Mr. Scott
The Senator has raised an issue that was addressed many times yesterday which is the potential merger of GM and Chrysler.
According to Senator Scott, "Look carefully at merging your (GM+ Chrysler) operations."

10.11 a.m.
Mrs. Brown-Waite
Crisis comes from lack of foresight, governance....."GM and Chrysler ignored their liquidity problems..."

Mr. Green
Can we afford to put out of 2 million people out of work?"

Mr. McCotter (michigan)
" You have put up a very viable restructuring plan"

10.21 a.m.
Opening statements by UAW President (Mr. Gettelfinger)- Basically Mr. Gettelfinger's opening statement is no different from what he presented yesterday. Ditto for Mr.Ford Mulally and Mr. GM Wagoner.

10.42 a.m.
Ramifications in dollar terms on the failure of dealerships.
Nardelli- "240 dealer gone bankrupt since last Saturday"

Center for Automotive Research: 3 million people could lose their jobs and out of this 240000 relate to the Big Three.
Mr.Wagoner- "We have been dealing with a record number of dealer restructuring"

Senators asking more questions specifically related to the plan. Questions around what happens if the plan does not work, can failure of the suppliers bring down the whole industry including suppliers etc.

10.53 a.m.
Mr. Wilson
We should have wording that covers using funds (if given) to prop up suppliers in the auto bailout plan.

Mr.Gettelfinger- 'Men and women of the UAW should be given recognition for the sacrifices made'.

Wagoner- Short Term Financing and Oversight Board as a mechanism to force all the parties to negotiate.

11 a.m.
Mr. Klein

The Big Three should work as a Joint Enterprise,in the technology sector.They should take some money out of what they might receive from Congress and collaborate together on technology, best concepts for future development and commercialization.

Mr Nardelli agrees
Wagoner- Yes
lady nodding vigorously in the background of Mr.Wagoner.
Mr.Mulally- Yes doing it with suppliers.

Rep.Hodes
Rep Hodes to Detroit Three, "Two weeks back you were simply in another universe"
What amount of money do you put on the need of the credit companies?
Chrysler- 4 to 5 billion
Ford- $12 billion (accessed already $4 billion out $16 billion from short term asset backed federal reserve loan)
GM- no exact amount

What percentage of money lent to these auto credit companies should go towards auto loans versus other purposes?-Unadressed question.

GM- Overseas business have been profitable.
Mr.Wagoner reiterates, 'We have paid $103 billion in the last 15 years in pension and medical insurance payouts.'

Mr.Manzullo
Why would auto industry want to start commercial banks? "Your job is to make cars" .Mr Manzullo feels that financing cars should be left to community banks.
Manzullo to Ford- Are we going to lose more industries and jobs because Ford manufactures and will continue to manufacture tool and dye equipment in China?
Ford- No...you bet (after a great deal of evasiveness)

11.34 a.m.
Mr. Hensarling
"If we say yes to you then who do we say no to?"
'Should it be only the small businesses that supply to the Auto Industry that should be helped?'
According to a CBS resport, $50 million paid by the Detroit Three on lobbying efforts. How much of this money has gone into lobbying to receive money under this bailout hearing.

One of the representatives from California had a very relevant question, 'Can you meet fuel economy standards by 2015?'
Great question but none of the participants were allowed to answer because of an administrative issue with time alloted to the Representative who asked the question.
Honestly, if this is the way the Congress takes its decisions, then how can we expect any rational decision?

Rep Kanjorski
Representative to Detroit Three.

"Instead of $1 a year salary, you should not be getting a greater salary that any of the successful Japanese auto executives as long as you are indebted to the United States. Until that time you should not be getting more than 20 times the salary of successful Japanese executives."

This statement by Rep Kanjorski is quite ironical if you look at Japanese companies and their struggle with bringing their CEO pay at par with their global counterparts.(http://online.wsj.com/article/SB122782362228562381.html)


Rep Maloney (New York)
Will you cease all legal and lobbying efforts to block California greenhouse standards for cars that have been adopted in New York and many other states?

Why can't you meet standards of fuel efficiency of other countries? That may be the only way to export more cars?

Live Blogging- Automobile Industry Senate Hearing Panel 2.

We are live blogging the Dec 5th auto hearing here .

Refer to the post below for Panel 1 that included questions posed by the Senate to the Comptroller General of Government Accoutability Office (GAO) on the potential bailout of the Auto Industry.

Senator Dodd introducing the second Panel.

Panel 2 consisting of :

1. President of the UAW
2. Chairman CEO of Chrysler
3. CEO-General Motors
4. CEO-Ford
5. President Automotive Retailers Association
6. President COO-Johnson Controls Inc
7 Chief Economist and founder of Moody'seconomics.com

Mr Wagoner Chairman & CEO General Motors:
Ironically, 2008 is GM's centennial year. According to Mr Wagoner, the restructuring plan almost creates a new blueprint for the revival of the company. Believes the plan is achievable. He requests $2 billion in short term loans and $6bil in line of credit. Repayment will begin as early as 2011 and complete by 2020. He wants a federal Oversight Board.

President UAW
opening statement

believes GM and Chrysler could run out of funds. Wants funds to be given to GM, Chrysler and Ford. With labor cost renegotiations, any differences in such costs as compared to international labor costs would be negligible.
Chapter 11 bankruptcy "simply not viable" neither is a pre-packaged bankruptcy.

Mr.Mulally
CEO Ford

Ford has a "laser focus" on the Blue Oval. Reduced investment in Mazda. Matching production to customer demand. Higher focus on smaller cars, fuel efficiency. "We are really focused."
Wants $9 billion in bridge financing may not use it, use this money for aggressive transformation.

Mr Nardelli
CEO Chairman Chrysler
requests $7 billion loan for continue restructuring, manufacturing fuel efficient trucks and cars, begin repayment in 2012. Wants immediate assistance from TARP.

Mr. Fleming
President Automotive Retailers Association
The Auto Industry failure will not just be a Ripple effect but a "Tsunami" (that word again!)
"Consider the human side"

Mr.Wandell
Johnson Controls-President and COO
Largest supplier of automotive batteries to the auto manufacturers.
Vast majority of minority and women owned suppliers can potentially fail .
Over 35% of their suppliers are financially distressed on the verge of bankruptcy.

Mr.Zandi
Chief Economist of Moody's economist.com

Loans requested by Auto Companies is insufficient. They will come back for more.


Q&A

Senator Dodd
1. Would you be willing to accept similar arrangement/model that had been used during Chrysler's 1979 financing.- Yes by all.
2. Cerebrus purchased Chrysler for $7 billion which is exactly the figure that Chrysler is asking the Congress for. What does that indicate?-Nardelli thinks there is no connection.
3. In view of the potential ramping up of mass transit, the big Three believe they can use their current brands to take advantage of this ramp up.
4. Mr Dodd wonders if management continuation at GM is the right way to go- Mr.Wagoner responds "I serve at the pleasure of the board"


Senator Shelby
1. Will the big Three provide full proforma financial statements for the next three years?-Yes from all.

Senator Menendez
1. Do the big Three refute the claim that they will be back for more money soon?
-GM, Ford believe their assumptions are conservative so indirectly they don't believe they will be back.

1.27 p.m.
Senator Crapo:
Congress might be able to provide the Oversight Board with the authority to impose restructuring conditions on all stakeholders.

Big Three
GM needs $4 billion immediately to tide matters over till end January 2009.
Ford just needs approval for funding if they should need it going forward.
Chrysler needs $4billion out of $7billion immediately.

Mr.Schumer
"We want to see the conditions before we give you the money"
Big Three has no leverage, not even threatening to go bankrupt will work. As Mr. Crapo put it, it is like saying "I will cut my nose to spite my face"

1.42p.m.

The President of the UAW is pushing for protecting the domestic industry versus promoting foreign competition.
Senator Schumer asks for an oral committment from all participants that they will abide by any arrangement covenants and make necessary sacrifices to make things work.

1.55 p.m.
Senator Corker to Chrysler "...you can date somebody and hopefully get married soon before you run out of money".
Chrysler Board member (representing the single major investor in Chrysler) to Senator Corker "there is no way that we are willing to make additional investments in the Auto Industry."

2.01 p.m.
Senator Corker, "Less public money (will be used) if the two of you (GM + Chrysler) consolidated"
Q to Mr.Wagoner "Why did you drop the plans to consolidate with Chrysler?"
Mr Wagoner blames liquidity issues for dropping the plan to merge with Chrysler.
Senator Corker- Would the UAW convert obligations into equity in GM?
UAW President- Cannot answer without "expert advice" (Lazard helping UAW.)

2.16 p.m
Senator Casey to Detroit Three- would you be willing to make monthly reporting and making government assistance as the most senior debt?
Yes to the first one
Maybe to the second one(after discussions with current secured creditors)
Senator Tester- Will you be back for more?
Detroit Three- Chrysler- we will get through 2009
Ford- We might be asking for the bridge loan.
GM- We might have to cut costs or require more funding

Big commotion!! Protest, Shouting

Senator Tester- Needs assurance that no dollars given would be used for mergers either domestic or international.

2.50p.m.
Senator Bennett, "everything i have seen...a merger between Chrysler and GM is a good thing"

Mr Wagoner, "We would be willing to look at it (GM+ Chrysler)" (after talking with UAW)

3.20 p.m.
Senator Corker- "We are really here because of GM."
- Senator Corker received an email from Senator Biden who runs the 136 financing plan, their applications have not been rejected but have been sent back for more information.
Senator Corker- "If we put money in GM,"....bondholders would be unwilling to take a haircut. This is a potential problem. They would want more now that GM has money.

Senator Corker to GM ,between a choice of accepting an arrangement from the Government with stipulations to be completed by Mar 31 or filing Chapter 11 bankruptcy, what would GM choose?
GM- Accept financing from government even if it has restrictive stipulations.

3.40 p.m.
Senator Dodd- "Inaction is unacceptable but we are not just going to write a check either". "We are looking at a death sentence."
Sit down over the next 24-48 hours and decide what to do next.

Committee adjourned at 3.42 p.m.

Live Blogging- Automobile Industry Senate Hearing Panel 1.

We are live blogging the Dec 5th auto hearing here .

We are live blogging panel 2 (Detroit 3 on the witness stand) right now!!

Invesguard will bring you live updates from the Senate Hearing as it happens...
Keep checking back for frequent updates..

The hearing has just started... Senator Dodd thanking outgoing senators....

Senator Dodd's opening statements:
According to the Senator, he asked Mr Bernancke if there was anything preventing the Fed from providing financing to the automobile industry. The treasury and Fed representatives were invited to the hearing but declined. He believes that failure of the Auto Industry would have ramifications far beyond manufacturing and pensions" and would "worsen the crisis".
Most of his opening statement was spent on explaining the ramifications of the failure of th auto industry.
Bottomline, he supports bankrolling the auto industry. He believes that conditions levied on Auto Industry companies for getting financing should also be levied on companies from the Financial Industry who have participated in TARP.

Senator Shelby opening statements:
He intends to oppose the bailout of the Auto Industry...
The "price tag" for the bailout increased from $25 billion to $34 billion 2 weeks. What changed?

First Witness:
Gene Dodaro
Acting Comptroller General of Government Accountability Office (GAO)

Before financing is provided, there is a need to understand if auto industry crisis is national economic crisis, if there is an exit strategy, companies are willing to make concessions , the federal government must be put in a first lien holder position, there should be controls over management, clear and consistent federal controls and monitoring over disbursement and use of funds.
There should be a rigorous board to oversee the administration of monies. This board has to be established if the decision is made to go forward with financing.
Financing could be provided through short term and long term loans in view of the urgency of the crisis.
He believes that TARP legislation is broad enough to provide such financing. But Board oversight should be included because current TARP legislation does not include critical management oversight.
UPDATE: Mr. Dodaro insists that the Congress should receive collateral for the loan indicating that he may not be trusting the assumptions on which the Auto Industry has based its potential repayment schedule.

Senator Bennett

Suggests providing financing to financial companies to provide funds to Auto companies. Such financing could be through equity participation by financial institutions in such auto companies. In such a way, financial companies will ensure the success of the auto companies and provide oversight of the disbursement of the funds as well.

Senator Schumer

Does not trust the Auto Industry enough to give them the money. Needs greater oversight and cooperation from various stakeholders for the Auto Industry bailout work.

Gary Kepplinger
General Counsel to the GAO

He is providing inputs from the Chrysler government financing (from a few years back) to provide similar controlling tools here.

Senator Brown

Points out that most of these questions surrounding accountability and transparency were never posed to banks that participated in TARP. I guess the Congress is a quick learner :-) Better late than never!!

List of Banks Participating in TARP- Refer to the sidebar of this blog for the latest list.

as of November 25th 2008.
Source: The Wall Street Journal
You will find the latest list under the second to last item of "My Blog List" on the sidebar of this blog.

Nordstrom's skewed incentive plan.

What kind of long term incentive plan involves accelerated vesting of stock units?

This is precisely the kind of incentive that is outlined in Nordstrom's revised 2004 Equity Incentive Plan (EIP) that I found in its recent 8-K filing (11/24/08). It outlines a plan to accelerate vesting of restricted stock units from 3 years to 6 months. This has some really strong implications considering that the stock is trading at its lowest levels in the past year! Ironically, the company states the purpose of the EIP is "to promote the long-term success of the Company and its subsidiaries and the creation of shareholder value by (a) encouraging Employees and Non-Employee Directors to focus on critical long-range objectives,......"

With restricted stock units vesting as fast as 6 months, there is almost, a myopic focus on the short term rather than long term. The awards of such restricted stock units is completely at the discretion of the 4 directors on the Compensation Committee as stated by the 8-K filing, "The (Compensation) committee shall select employees and non employee directors who will receive benefits under this plan."

What will be interesting to see is who will be awarded such restricted stock units in the months to come. As per Nordstrom's latest proxy filed in April of 2008, none of the named executive officers had any outstanding restricted stock awards. It almost appears as if the company is laying the groundwork to start issuing some lucrative restricted stock units to certain executive officers and directors.

Juggling Citigroup Directors drop the ball?

The idea behind having independent outside directors on a company's Board is primarily the expert third party advice that they can potentially provide. Ofcourse, 'potentially' is a key word here. Just nominating a few senior executives from other companies to your board is not enough. The 'potential' needs to evolve into an active and interested director. This transformation from 'potential' to 'actual' happens when these directors are regulars at Board meetings and devote time that is needed to provide advisory services to these public companies.

Unfortunately, another by-product of the financial crisis has been the spate of director resignations at financially troubled companies.

The WSJ recently reported on the growing number of such Board resignations at public companies. This should come as no surprise when you consider the number of boards that each of these "outside experts" are sitting on.

As an example consider the number of public company boards that some Citigroup directors are sitting on: As per the company's proxy statement issued in 2008, the final tally of directors who sat on more than 2 public company boards looked like this:
(The numbers in brackets show the total number of public company boards that these directors sit on.)

Sir Winfried Bischoff (4),Kenneth T. Derr(3),John M. Deutch(4), Anne M. Mulcahy (3),Dr. Judith Rodin (3), Robert L. Ryan(5- He retired from one in June'08)

Goldman Sachs looks like this:

William W.George (3), James A Johnson (3), Lois Juliber (3), Rajat Gupta (4) Laxmi Mittal (4)

Besides this, 3 out 13 board members at CITI are CEO's of other public companies. At Bank of America 2 board members are CEO's of public companies.

With directors sitting on multiple Boards, how can shareholders expect a focused and attentive Board? For those that sit on 3 or more Boards, they could even be getting mixed up in the issues and concerns at different companies. It wouldn't be a stretch to imagine getting mixed up while juggling meeting dates, agendas and decisions when you are managing compensation, audit, risk review etc at multiple public companies, not to mention the non profits that also vie for your attention.

image: mcglinch.com

Basel Committee Strategy to Combat Financial Crisis.

Yesterday, the Basel Committee announced a "comprehensive strategy" to combat the banking crisis. Chief among the recommendations were:

• Ensuring the risk capture process under the Basel II framework included both book and off-balance sheet exposures.

• Increasing capital buffers that will aid in times of stress.

• Increasing vigilance over liquidity levels at cross border banks through stronger supervisory frameworks.

• Using Basel II to build up governance practices at banks.

For a full report click here.

While on the subject of Basel and its supervising body, Bank For International Settlements (BIS), back in September, Már Gudmundsson, the Deputy Head of the Monetary and Economic Department of the BIS, addressed the Financial Technology Congress at Boston.

A few of his observations presented at this forum on the current financial crisis:

-Financial institutions are in the process of reducing their leverage and size, by both selling assets and reducing staff. The result will be a smaller financial sector, at least for a while.
-The banking system will probably have to operate with higher capital buffers than prior to the crisis.
-There might be additional capital charges under Pillar 2 (supervisory review process). In addition, there is an active discussion taking place on the merits of introducing a limit on the leverage ratio of financial institutions, which, depending on where it is set, might call for more capital than otherwise at the peak of the next boom.
-Banking supervisors will demand high quality data and analysis.

During his speech, he painted a picture of the future of the financial sector in the years to come. Here are a few of his predictions:

"1. Higher capital and liquidity buffers and higher risk premia will entail a higher cost of capital and credit than before the crisis. That is not necessarily bad, as risk was underpriced.

2. Financial firms basing their business models on cheap access to funding in wholesale markets will either have to adapt or disappear. In the United States, the trend is currently towards universal banking. Competition for deposit financing will also be intense for a while.

3. On the product side, a premium will be put on simpler products because regulators and investors will remain sceptical of complex structured products and because management of financial firms will insist on understanding the products they offer, at least for a while!

4. The originate-to-distribute model remains to be fixed, and the interests of all the various players in the securitisation chain have to be better aligned. However, that does not mean that the model will disappear. At the fundamental level, the idea of distributing risk away from the institutions at the core of the financial system to investors that are willing and able to share in the risks is basically sound.

5. Finally, the financial sector will become smaller and less leveraged. That is the only way the sector can be returned to soundness and profitability in the environment that is likely to prevail in the post-crisis period. However, such retrenchment has to be seen against the earlier growth of the sector"

For a full report on his speech refer here.

Unrest at Citi India.

Citigroup lost its CEO of India and South Asia, Mr.Sanjay Nayar. He will be succeeded by Mark Robinson, a longtime Citi employee.

Mr.Nayar is slated to join Kohlberg Kravis Roberts & Co. early next year as CEO (India).

Citi is also planning to slash 1000 jobs in India, primarily in its lending arm- Citifinancial India. These changes come close on the heels of Citi's recent sale of its 12000 employee back office operations in India.

more to come....

Terrence Lani resigns from KB Homes.

After reports questioning the credibility of Mr. Terrence Lani's past education arose, he resigned from his CEO position at MGM Mirage. In an 8-K Sec filing yesterday, KB Homes also announced the departure of Mr.Terrence Lani from his director post at the company. As per the 8-K filed by KB Homes , Mr. Lani informed KB Homes of his decision on November 13th. Although, Mr.Lani would have us believe that the decision to resign from MGM and now KB Homes, is driven by the need to have some personal time, his decision came too close on the heels of the WSJ report about the authenticity of his MBA.

Mr. Terrence Lani was chair of the Compensation Committee at KB Home. If you remember, there were compensation governance issues at KB Homes when the CEO was accused of choosing favorable stock option dates for himself and others in his company. (Incidentally, he settled charges with SEC in September of this year.)
Mr.Terrence Lani had been director at KB Homes since 2003.

Pepsi's "Strategy to Succeed"

Yesterday, in an 8-K filing, the Pepsi Bottling Group, unveiled its new multi year initiative called "Strategy to Succeed".

This plan takes aim at the company's customer service, streamlines processes, takes a stab at reducing costs and at the same time "rationalize(s)" the company's supply chain.

Behind this grand statement lies a plan, which like many other companies today, scales back operations, (Pepsi will close 4 facilities in the U.S., as well as 3 plants and about 30 distribution centers in Mexico, Pepsi will also eliminate about 700 routes over time in Mexico), lays off global employees (approximately 3,150 positions will be eliminated, including 750 positions in the U.S. and Canada, 200 in Europe and 2,200 in Mexico) and makes changes to retirement/pension plans.

The company hopes to make a pre-tax saving of around $140 to $170 million with this initiative. This does not include charges associated with changes in the pension plan.

The company is projecting a less than positive outlook for the coming period."Deteriorating macroeconomic conditions" in Mexico has also resulted in the Audit Committee of the Board of Directors approving a $412 million non-cash impairment charge. This primarily relates to certain intangible assets for their Electropura water business in Mexico.

In the 10-K filed by the company during the last quarter, there were several indicators of the company fighting a slump in the Mexico market including the physical case volume in Mexico decreasing by 9% for the quarter and 4% for the year-to-date period. These declines were partially offset by the growth in the the net price per case in this market.

Image courtesy: shopshorthills.com

Bernanke, Paulson, Sheila Bair at Financial Services Hearing.

The House Financial Services Hearing concluded at noon today, leaving Secretary Paulson on the defensive about the execution of the rescue plan as well as on the other side of the table from Chairman Bernanke and Chairwoman Sheila Bair with respect to allocating TARP funds to directly helping homeowners.


Secretary Paulson (to no great suprise) was grilled and probably deep fried by almost all the Representatives on the Financial Services Hearing committee. His responses, which were pretty standard irrespective of the questions, centered around:

1. TARP not being a vehicle for helping the auto industry.
2. TARP not being a vehicle for direct intervention to help homeowners.
3. TARP will not be used to purchase illiquid assets.

As you will probably notice, all these are just a collection of his past interviews/press releases over the last few days.

Chairman Bernanke on the other hand expressed support for Chairwoman Sheila Bair's plan to help affected homeowners directly, although he also expressed reservations on some aspects of her plan.

Chairwoman Sheila Bair of FDIC really did not have to answer almost any questions, barring a few to clarify her plan to help homeowners directly.A few points about FDIC Chairwoman Sheila Bair's homeowner rescue plan:

1. The plan will be available only to self occupied property owners.
2. The plan will renegotiate the mortgage payment down to 31% of the homeowner's income.
3. In case the homeowner redefaults, the government will be responsible for 50% of the money due. (this is the part that Fed Reserve chairman Bernanke hates)
4. The entire process will be executed by mortgage servicers, not by the government.


It was no surprise then, that at the end of the hearing, Chairwoman Sheila Bair and Secretary Paulson barely acknowledged each other as they walked to leave the hearing room.

If you are interested in watching Secretary Paulson's uniform responses or watching Secretary Paulson interrupted while trying to answer every question he was asked, here is where you'll find it.

Jerry Yang to Step down as CEO of Yahoo.

In a sentimental memo to his employees, Jerry Yang announced his departure from Yahoo. He will continue to be 'Chief Yahoo' and will be present as a member of the Board of Directors.

Mr.Yang took the mantle of CEO in June 2007. His tenure as CEO was marked by a spate of failed attempts to lift Yahoo out of the doldrums including the botched up deal with Microsoft,the abandoned search deal with Google followed by possible merger talks with AOL that went nowhere.

Chairman Roy Bostock, working with the independent directors and in consultation with Jerry Yang, is leading the process of assessing potential candidates to take over the position of CEO after Mr Jerry Yang steps down. The search will encompass both internal and external candidates, and the Board has retained Heidrick & Struggles, a leading international executive search firm, to assist in the process.

According to the statement issued by the company, Mr. Jerry Yang will step down as CEO as soon as a successor is appointed. He will continue to focus on "global strategy and to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation."

Whether this rekindles hopes of any deal with Microsoft or anybody else for that matter is up in the air....for now.

High tension, Great performances, an almost Emmy award winning saga......Hedge Fund Hearings on C-Span.

Honestly, the Cspan channel on T.V. has become the most engaging channel in recent times. I mean it has 'shows' that have drama, emotion, high stakes as well as glamour, not to mention the interesting lineup of financial industry 'celebrities'. Fox and gang can learn a thing or two from these hearings. No wonder there are blogs devoted to C-Span events (check out cspanjunkie)

In yesterday's episode of the star studded House Oversight Committee ‘show’, the hearing focused on the role of the hedge fund industry in the current financial crisis. The House Oversight Committee invited several advisors including a past SEC chairman along with a handful of hedge fund managers to investigate the role of the hedge fund industry in the current financial crisis.

This has been their general pattern of 'questioning'. They go with the advisory panel first, trying to get a sense of what can be done to correct the problems and then they hone in on the (supposed) 'perpetrators'. Of course there are those from both these sets of panels who will refuse to answer or provide any information feigning either ignorance (case in point, Mr Willumstad ex-AIG) or the Law professor (Joseph Bankman, Stanford University) from yesterday's panel who claimed most of the questions posed to him were outside his scope of expertise. Hmm...note to myself...blog about the 'dead wood' at these hearings...might make for some hilarious s(n)ide notes...more on s(n)ide notes later…

Anyway, expect changes in the regulatory landscape for hedge funds soon. Some of the often repeated advice from the advisory panel that came out (except of course, good ol' Prof Bankman):

1.There is a need for Federal oversight over hedge funds. The logic behind this is that hedge fund operations directly impact liquidity and the Federal Reserve Board is directly responsible for the state of liquidity in the markets.

2. The SEC should be able to able to inspect the information systems particularly the risk management systems of hedge funds and report the information coming out of this function directly to the Federal Reserve.

3. The Federal Reserve Board should impose 'Capital Adequacy Norms requirements' or 'Maximum leverage constraints' for all those 'too big to fail' type financial institutions.

4. To address large scale short selling activities by hedge funds, there was common consensus, that "under certain conditions", hedge funds should report their short positions to the regulators. Not to the public mind you, but to the regulators. This information would be kept confidential to the public at large.

S(n)idenotes **(refer footnote for meaning)

During the 5 minute presentation by the hedge fund managers, what came out was their desperate need to communicate to the House Oversight Committee and ultimately to the public watching this program, how their or their fund's incomes were not unreasonable or how they were completely in synch with the needs of the'common man'.

We had Mr.Philip Falcone (Senior Managing Partner of Harbinger Capital and ranked 707 on the world’s Billionaires List for 2008 by Forbes) depicting his deprived childhood- being one of nine children in a small remote town in Minnesota. Of course, the fact that, today, he calls some swanky dig in New York City his home is somehow not relevant..

Another hedge fund manager, Mr.John Paulson of Paulson & Co. Inc went to great lengths to explain his fund's squeaky clean and upfront policies with clients.

As expected, most of them were defensive, blaming the banking sector for most of the credit and financial markets' woes.
(According to one of these managers, the hedge fund industry is not as leveraged as the banking industry and Mr.Paulson most definitely supports additional regulation for these troubled industries which would not include regulating hedge funds.)

When questioned on potential regulation for the hedge fund industry, most hedge fund managers were quick to respond that the "financial tsunami" had occurred in the industries that were already regulated and not the hedge fund industry! I would challenge these hedge fund managers to say that with a straight face to all those displaced hedge fund employees who had to be laid off, precisely because of this financial crisis . That is ‘far removed from reality’ for you.

Anyway, if you want more of this drama, grab some popcorn and see the whole recorded shebang here.

**(s(n)idenotes (noun) : snide sidenotes)

Auditor's to blame for unreliable financial statements?

It can be safe to conclude that the recent financial crisis can be largely attributed to loose or missing internal controls coupled with a lack of adequate regualtion at large public companies. To guard against the lack of controls and regulation affecting the reliability of financial statements, these financial statements are certified as being 'true & fair' by 'independent', qualified and trusted public accounting firms.

Auditor processes and procedures at various public companies undergo an indepth scrutiny by the PCAOB (Public Company Accounting Oversight Board). This is a private body that was established by the Sarbanes Oxley Act, 2002 with a mission to keep an eye on public company auditors.

Unfortunately, the number of cases where the auditors have been reported to have failed in their responsibilities is growing at an alarming rate. 2 recent cases related to the incompetence of senior executives of Deloitte were recently brought to light. Both these executives were partners at the Chicago office of Deloitte.

In one case, the Deloitte partner Christopher E. Anderson, showed gross negligence by ignoring 'apparent errors' in financial statements resulting in an overstatement of earnings, assets and revenues.

In the other case, the Deloitte partner, Thomas Flanagan used his information about the financial and non financial aspects of his client company to profit from trading in that company's securities, sort of like 'insider trading. This breaks the SEC's rule regarding 'independence' requirements for auditors. This was not a one time or one client incident. He did this over a period of 3 years and for all the clients where he was the engagement partner (including Walgreens, AllState and USG Corp). Consequently, the reliability of all those financial statements where he signed off comes into question. Walgreens, Allstate and USG subsequently conducted a legal investigation and concluded that their annual and quarterly financial reports were unhindered by the Deloitte Partner's activities. (How is that possible?!!)

This is just the tip of the iceberg. The PCAOB publishes the results of the inspections of such accounting firms here. I have to warn you that this is by no means a small list....My suggestion would be to find out who is the auditor of the company that you are invested in, ( you will get this from the company's annual report, if you cannot find it, send me a message and i will get you the name) and find out if this auditor is on the PCAOB inspection list. (the probability that they are on this list is very high.) You can read the inspection report to find out which company and what matters were raised during the inspection. Granted that these inspection reports cite historical cases, but knowing who is certifying the financial statements of the companies that you are invested in, is a key piece of information. This is definitely some useful reference reading that every investor should use.

Obama And You- 2

In case you are wondering how you can use President Elect Obama's resounding victory (there, I used the word again!) to benefit your current investment portfolio, I suggest looking back at the sectors/industries that he discussed during his time on the campaign :

1. Infrastructure: Barack Obama believes that it is critically important for the United States to rebuild its national transportation infrastructure – its highways, bridges, roads, ports, air, and train systems. Companies doing business in these areas should certainly benefit in a big way. Obama has promised to address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments. The Bank will receive an infusion of federal money, $60 billion over 10 years, to provide financing to transportation infrastructure projects across the nation.

2. HealthCare: Obama has stressed on revamping the health sector...presumably a lot of money would be invested in this sector. Health Care companies should stand to benefit in the next 4 years.

3. Energy: President Elect Obama has a lot of goodies for this sector....increased job generation, committment to put a million hybrid plug in cars on the road by 2015, reduce green house gas emissions, increased importance to renewable sources of energy etc.


Based on President Elect Obama's industry proposals, here are a few companies that will face better prospects in the near future:
(Standard Disclaimer: This is not a recommendation to buy or sell or trade. Just for informational (and recreational) purposes only. Please make investment decisions at your own risk.)




You get the general idea....With the markets as depressed as they are, lots of good deals out there in these industries and others.

Obama And You.

With Obama's resounding victory, this is the time to really try and understand his stand on issues that affect us personally...let us start with his stand on the Government sponsored bailout plan going forward: (Click on the image to see a bigger image)

Another thing,try playing on the Obama Tax Calculator to find out how much you are looking to potentially save under Obama's Tax policies.

And here is what we should expect from him on the mortgage industry revamp:

In case you were wondering which banks have asked for and received a share in the $700 billion pie, here is the list.....the word on the street is that at least some of these banks will use the money to make acquisitions.
If you click on the image, it should open larger on a new page.

Lessons from previous state-owned 'Private Enterprises'.

With large scale Governments investments into private entities on the rise, I think this would be a good time to look back at similar situations to see how such private entities fared post government intervention. The best case in point would be France. France has had an extended policy of nationalization under their late president Francois Mitterand.

One example is Credit Lyonnais, the French bank that was nationalized twice...once in 1945 after the world war and the other time when the bank's assets and liabilities were moved to a state owned corporation.Credit Lyonnais collapsed completely after it had squandered away vast resources while financing Giancarlo Parretti's takeover of MGM in 1990. In addition, the former president of the bank, Jean-Yves Haberer, was under investigation over allegations of inaccurate financial reporting and misuse of business assets. The case revealed the strong links that existed between the bank's state-appointed heads and the government during the administration of the late president Francois Mitterrand. Credit Lyonnais was ultimately fully privatized in 1999. It was acquired by another bank Credit Agricole and reorganized.

Recently, there was strong public reaction to Congressman Waxman's revelation that AIG spent $440,000 on entertainment at a resort in California. But the fact that those were never AIG employees but self employed agents (Agents being critical to an insurance company) was never much publicised. If a private company is run by politicians who don't have the requisite experience to run private organizations, shareholders would be better off with a newer management board than an inexperienced one from the government.

Companies that were nationalized but subsequently allowed to go private such as Renault are healthy (is that even possible in today's market?) and profitable, thus furthering the cause for privatization rather than nationalization.

Revealing Testimony at the Hearing of Credit Rating Agencies.

Regular readers of this blog would remember my post back in July of this year about declining standards including computer programming errors at Credit Rating Agencies.(these would be moody’s, S&P, Fitch etc).
You can see that earlier post here

Yesterday, top executives from Fitch Ratings, Moody’s and S&P were grilled by the House Committee on Oversight and Government Reform. SEC findings from an examination of records at credit rating agencies, that was conducted earlier this year was brought to light once again.

A few highlights and memorable quotes:
1. An email written by an employee of one credit rating agency wrote that the ratings don’t capture half the risk of the deal and even the deal “was structured by cows, we would rate it.”

2. Another report indicated that executives were quoted as saying that “….hopefully we will be retired when this house of cards collapses.”

3. In a presentation made to the his board of directors a year ago, CEO Raymond McDaniel warned that his employees sometimes "drink the Kool Aid" and gave in to pressure for high ratings, even as the weaknesses of the mortgage-backed securities were becoming apparent.

4. One of the participants at the hearing also felt that issuers of investment instruments awarded credit rating contracts to agencies that were willing to give them favorable ratings.

In case you missed this very informative, revealing and not to mention entertaining (!) exchange see it here

BTW, in the testimony of Mr.Alan Greenspan (he is testifying before the same committee this morning) "....unrealistically positive designation (of financial products backed by sub prime mortgages) by credit rating agencies was the core" of the current international economic problem.

Leadership missing in Action at Financial Companies- Part II

Looking at Senior Management Turnover at companies can reveal a lot about that company’s health.

Beside the CEO, positions that are critical to a company’s core would include, in case of the financial industry, the Chief Risk Officer (CRO). Departure or a shuffle involving this executive should definitely put you on high alert. There could be several reasons behind the turnover of senior management.

1. Could it be that the CRO warned the management about high leverage risks or perhaps non compliance risks and management did not appreciate that?

2. Maybe the new CRO who is replacing the old one is a buddy of the CEO…this could lead to a conflict of interest…

Anyway, In September 2007, Lehman reshuffled its Risk Head Madelyn Antoncic out of her role into a relatively sedate role dealing with global public policy. The reason: She had warned senior management that it was taking on riskier bets than was good for its health.

At AIG, (specifically AIG Financial Products) the Vice President of Accounting Policies, Mr.Joseph St.Dennis resigned from his position after his warnings that the accounting behind the risky financial products that AIGFP was peddling would subject the company to extensive losses, went unheeded. Mr. St. Denis subsequently came forward and gave his evidence before the House Committee on Oversight and Government Reform. Mr. St.Denis resigned in October 2007. Soon after had discussions with AIG’s auditors. They in turn, declared that the company had material weaknesses in its Internal Control System for the financial year ended December 2007. Makes you wonder, what were they doing until then?

Subsequent to Mr.Dennis’s departure, AIG also had changes in its Board of Directors Audit Committee in 2007.

Citi has had a new CEO as well as a new Risk Officer, all in 2007. They also changed their Risk Officer once again in early 2008. The earlier Chief Risk Officer had apparently chosen to retire. (after being in office for less than 6 months!)

Goldman Sachs and Bank of America (BOA) have not had any significant or critical positions that were reshuffled or fired during the entire 2007. Ofcourse this does not take into account the shuffle at BOA post Merrill purchase, but that was in 2008.

What do all these executive changes mean in terms of the share value? Can these be indicators or rather foretellers of the future?

Maybe…way back in September 2007, if a Lehman investor would have considered the implications of a Chief Risk Officer being taken out of her position and shuffled somewhere else, it should have raised red flags or a ‘watch’ on that stock.

Anytime a crititcal position in a company is changed, due to reasons other than retirements, it’s time to step back and think behind the reasons. Most large institutional investors would use information like this to take the right investment decision. Even if you are not invested directly in stock market but in mutual funds or 401K’s or other investment vehicles, it is always appropriate to be aware of the companies that belong to the industry in which the mutual fund has invested your money.

Before I post'Missing Leadership.... Part II', I have to comment on the interesting response that I received (well, indirectly) about the earlier post. To summarize, this individual felt that governance is over rated and it is almost impossible to attribute economic failures to the quality of leadership at any given company.

It is interesting that you should say that, because here are some instances in the current economic scenario that reflect this very thing:
1. Lehman top boss Mr.Dick Fuld has been questioned on the 'misleading' information that he presented during analyst calls. Many regulators believe the picture that was painted of Lehman during this call was misrepresented. There are several instances of people holding on to their investments in Lehman purely based on Mr.Fuld’s confident outlook on that and other calls.

2. At the ongoing hearings of Wall Street honchos, Congressmen want to hear evidence of poor leadership on the Lehman Board. (Similar points that I brought to light on Bank of America but only worse). I have attached a part of the transcript of the statement that was made before the Congressional Committee by a respected finance professional about Board failures at Lehman.

"While some of the individual director backgrounds at Lehman reflect more experience in banking and financial services than some of the other recent failed firms, overall it did not have the depth of experience it needed. Notes Dennis K. Berman of the Wall Street Journal:
Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry…. Until the 2008 arrival of former US Bancorp chief Jerry Grundhofer, the group was lacking in current financial-knowledge firepower. A number of the members did have past financial-markets expertise, but most of their working lives were tied to a different era: The one before massive securitization, credit-default swaps, derivatives trading, and all the risks those products created.
Until recently, one director was actress Dina Merrill, daughter of E.F. Hutton. She retired in 2006 at age 83 after 18 years of service. At the time of her retirement Ms. Merrill was a member of Lehman’s Nominating & Corporate Governance and Compensation & Benefits Committees.
Currently serving on the board is Broadway producer Roger Berlind, 76, the longest tenured member of the Lehman board, his only public company directorship. While we do not recommend over-boarding, it is usually not a good idea to have people on boards who have no other board or sector experience. Mr. Berlind is a member of Lehman’s Audit and Finance & Risk Management Committees. Also on the board is Marsha Johnson Evans, 60, a former Rear Admiral with the US Navy and head of the American Red Cross and Girl Scouts of the USA. Ms. Evans is a member of Lehman’s Nominating and Corporate Governance, Compensation & Benefits, and Finance & Risk Management Committees. She is also an active director of three other large US corporations: Weight Watchers International, Office Depot, and Huntsman Corporation; she is a former director of AutoZone. Michael Ainslie, who has been on the board for 12 years, is the former Chief Executive Officer Sotheby's and former President and CEO of the National Trust for Historic Preservation......"

3. Yahoo’s decision by top ranking executives to spurn the Microsoft offer at 33$. Yahoo shares hover around $12 today. That is a 60% reduction in less than 6 months.

These are just a few instances of top leadership failures that contributed to drastically reducing shareholder value. Let’s not fool ourselves into thinking that an investment strategy devoid of non financial research is an optimum one.

I hope I have not misconstrued the comment that was made. My only intention is to raise awareness of the average investor on non financial issues before making an investment decision.

Write back with your thoughts on this. I will be back with Part II later today.