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Tag: economics

  • Leo Hindrey — a one time cable and telecom mogul goes to work on the minimum-wage challenge

    Leo Hindery Jr.
    Leo Hindery Jr.

    Leo Hindery is a one-time cable and media mogul and a private-equity fund manager who heads the Smart Globalization Initiative of the New America Foundation.  He writes magazine columns. And, as part of a group called “Smart Capitalists”, he’s also on a tear about the minimum wage.  In 2014, he joined a group of other executives in a visit to Capitol Hill to lobby for an increase in the U.S. federal minimum wage. And in the process, he lobbed pot shots (VIDEO)  at the CEOs of MacDonald’s and Walmart for not giving their workers a raise. “It’ such an ethical issue and it is the right place to start to address the imbalance.”

    MacDonald’s and Walmart have both moved in the right direction since then. But Hindery says the problem is much deeper than just two companies, starting with the way the government measures and reports unemployment. “We have more income inequality in the United States that we’ve had since 1928,” he says.

    While the sheer amount of jobs in the US are growing, by 280,000 in May 2015, the unemployment rate is actually increasing and middle-class workers are finding it harder to make ends meet and earn a living wage. Fundamentally, this is catalyzed by the disappearance of quality manufacturing, blue-collar jobs that have allowed for widespread employment and prosperity. Now, the epicenter of middle-class employment is shifting to corporations, such as WalMart, that value cost cutting and shareholder value above all.

    In mid-2015, the U.S. Bureau of Labor Statistics reports an unemployment rate of 5.5%, up from 5.4% in 2014.

    But those figures fail to address the full scope of the problem of “real employment,” says Hindery, managing partner of InterMedia Partners, a New York-based media industry private equity fund. This is because the number only includes those who have actively searched for work in the past month. There are many who are seeking jobs and have searched for one in the past year but have been too discouraged or somehow hindered from looking during the past month. Hindery estimates there are about 1.9 million “marginally attached workers” as he calls them. Hindery includes part-time-of-necessity workers in his definition of real unemployment, workers who want a full time job but are stuck with fewer working hours than they need. He estimates that there 6.7 million part-time-necessity workers.   Thus he says the real unemployment rate remains steadily at 10.8% from last year to May of this year.

    In large part, this problem occurs because big corporations, such as Walmart, believe that hiring many part time workers and releasing their schedules at the last minute will be the most efficient way to align supply of labor with demand. The more last-minute the schedule, the more accurate the forecast of how many workers are needed, and the less commitment. However, the cost of understaffing can often be higher than overstaffing. Furthermore, the problem of forecasting demand could be largely avoided if there was more investment in employees, such as training employees across many tasks in the company. In this way the task, not the required employee, is what varies depending on demand.

    This approach is in contrast to the “good-jobs strategy” advocated by MIT Sloan School Prof. Zeynep Ton.

    RELATED RESOURCES:

    VIDEO: Hindery, in 2007, talking about then-presidential candidate John Edwards’ economic proposals

  • CalPERS pension fund includes public interest as central to investing decisions

    CalPERS pension fund includes public interest as central to investing decisions

    The changing relationship between corporations and society is at play in the evolving investing strategies of pension funds.

    CalPERS CEO Ann Stausboll
    CalPERS CEO Ann Stausboll

    Rather than electing to exclusively pursue the strongest possible financial returns, some pension funds are investing with other concerns in mind. When CalPERS adopted a set of investment principles Amanda White reported on the announcement. In 2013 California’s largest pension fund published a list of formal investment principles that included an expanded definition of fiduciary responsibilities.

    According to CalPERS chief executive Ann Stausboll, “The fiduciary responsibility of pension funds should extend to issues outside the parameters typically understood as being directly related to beneficiaries’ financial interest, says to CalPERS chief executive Ann Stausboll. “It is our job to make sure investors, businesses and policymakers are responding aggressively and creatively to the opportunities associated with climate change and other sustainability issues.”

    In step with companies such as Patagonia, CalPERS has emerged as a bold innovator by adopting a more comprehensive view corporate purpose. Patagonia uses “flex hours” in order to enable employees to live active lifestyles. As CalPERS, Patagionia, and other companies continue to broaden their corporate philosophies beyond exclusively serving the interests of shareholders, policymakers also evaluate the existing rules in order to accommodate the changing understanding of corporate purpose.

  • Elizabeth Murdoch: Money not the only “effective measure of all things” or free market “only sorting mechanism”

    Elizabeth Murdoch: Money not the only “effective measure of all things” or free market “only sorting mechanism”

    “As an industry — and indeed as a global society — we have become trapped in our own rhetoric. We need to learn how to be comfortable with articulating purpose and reject the idea that money is the only effective measure of all things or that the free market is the only sorting mechanism.” — Elisabeth Murdoch, executive.

    “There is one and only social responsibility of business — to use its resoures and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” — Milton Friedman, economist. 

    Friedman’s line of thinking  has informed the beliefs of many of the titans of capitalism who claim that, no matter the negative impacts of their businesses, they are merely playing their part in the capitalist system. Titans such as Rupert Murdoch, the telecommunications giant who is currently #69 on the Forbes Billionaire List with a net worth of $13.8 billion.  Murdoch has found himself in the headlines in the past for engaging in questionable practices in the pursuit of profits as his newspapers were investigated for hacking the cellphones of British celebrities, royalty and even regular citizens.

    It is instances like this that cause one to challenge Friedman’s concept that the pursuit of profits are businesses only responsibility. However, there are business leaders who offer an alternative to this concept, some of whom come as quite a surprise. One of them is Murdoch’s daughter, Elisabeth,  and the CEO of Shine Limited, which stands for more than the pursuit of profits. In 2012, Ms. Murdoch delivered the keynote address at the GuardianMedia Edinburgh International Television Festival and surprised many with the message she sent. Her overall thesis can be best summarized by her quote that, “Profit without purpose is a recipe for disaster.” The speech can be found in it’s entirety here. She said:  “As an industry — and indeed as a global society — we have become trapped in our own rhetoric. We need to learn how to be comfortable with articulating purpose and reject the idea that money is the only effective measure of all things or that the free market is the only sorting mechanism.”  She added:

    “Do we have such faith in the imperatives of the market that we need have no will of our own other than to succeed on its terms? It is increasingly apparent that the absence of purpose — or of a moral language — within government, media or business could become one of the most dangerous own goals for capitalism and freedom.”

    It is important to keep in mind that in 2011 Elisabeth sold Shine Limited to her father’s News Corporation. She said the sale was necsary to achieve scale in the increasingly digitized media industry. Murdoch is seen as the possible future head of her father’s empire.

  • BOSTON GLOBE: Is ‘shareholder value’ bad for business?

    What is the purpose and structure of the modern corporation, and what are the consequences when management takes a short-term approach to meeting corporate goals?

    . In a recent article, Boston Globe reporter Leon Neyfakh captured the debate surrounding the “future of the American corporation—what its purpose is, how it should be run, and whom it should be engineered to benefit.” The article describes how shareholder-guided corporations often fail to adequately serve other stakeholders such as employees, customers, the environment, and local community. Nayfakh also notes the failures of shareholder supremacy and the harms inflicted on others, even shareholders themselves. He writes: “Countless others made short-sighted decisions intended to goose earnings, keep investors happy, and enrich themselves—all without regard for the long-term health of their companies.” Shareholders, according to Neyfakh, have also been harmed by the status quo and are increasingly advocating for greater representation on boards of directors.

    There are other strong voices in the debate about the structure and purpose of corporations such as Harvard Law School professor Lucian Bebhuk. He argues that there are significant barriers to greater shareholder activism that stem from the near-absolute power of the board and CEO. Bebchuk favors empowering shareholders to make “rules of the game” decisions about the structure of the corporate ballot set by by-laws. Bebchuk explains that these decisions are unlikely to occur because boards and CEOs accrue private benefits from having control over the corporate ballot such as job security, higher pay, and other perks. This problem of board capture also manifests itself in the exorbitant pay of many CEOs which some have referred to as the “smoking gun” of managerial opportunism and other corporate governance failures.

    While the stakeholder model may appear to be a better alternative to the shareholder primacy model, there are unique challenges to detecting and eliminating managerial opportunism under a stakeholder model. If CEO performance is currently quantified in share price and compared to peers, what performance metrics would complement the creation of shareholder value? How would these different metrics be balanced? The inclusion of alternative metrics creates room for CEOs to justify even more egregious pay packages. For example, if a CEO serves the local community and workers well but delivers weak financial results, how much should the CEO be paid? Even under the shareholder model, CEOs are able to justify vast compensation packages to boards and shareholders. During economic downturns, CEOs are paid for performance in spite of various headwinds and obstacles. Insider opportunism is clearly prevalent in the shareholder model and might even be more insidious and frequent in the stakeholder model.

    These challenging questions suggest that the stakeholder model might be more vulnerable to insider opportunism than the shareholder model. As Jonathan Macy and Geoffery Miller warn “constituency statutes do not benefit the interests or groups that they ostensibly are intended to benefit. Rather, such statutes benefit a well-organized, highly influential special-interest group, namely the top managers of large, publicly held corporations who wish to terminate the market for corporate control.”

    Together, these issues represent an essential point of focus for corporations, politicians, and citizens alike. Accordingly, the Rules Change team will provide coverage on issues of corporate governance as they continue to unfold.