Tag Archives: Wall Street Journal

Zuck Does What Zuck Wants

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As most of you know, Facebook acquired Instagram last week for about… (cue Dr. Evil) one BILLION dollars. But an article in the Wall Street Journal illustrates how the board’s input on CEO Mark Zuckerberg’s decision was virtually nil. Notwithstanding the fact that he holds majority voting rights and can technically do what he wants, it’s still a pretty bad-a** move, in this blogger’s opinion. WSJ reports:

On the morning of Sunday, April 8, Facebook Inc.’s youthful chief executive, Mark Zuckerberg, alerted his board of directors that he intended to buy Instagram, the hot photo-sharing service.

It was the first the board heard of what, later that day, would become Facebook’s largest acquisition ever, according to several people familiar with the matter. Mr. Zuckerberg and his counterpart at Instagram, Kevin Systrom, had already been talking over the deal for three days, these people said.

Negotiating mostly on his own, Mr. Zuckerberg had fielded Mr. Systrom’s opening number, $2 billion, and whittled it down over several meetings at Mr. Zuckerberg’s $7 million five-bedroom home in Palo Alto. Later that Sunday, the two 20-somethings would agree on a sale valued at $1 billion.

It was a remarkably speedy three-day path to a deal for Facebook—a young company taking pains to portray itself as blue-chip ahead of its initial public offering of stock in a few weeks that could value it at up to $100 billion. Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks.

Mr. Zuckerberg ditched all that. By the time Facebook’s board was brought in, the deal was all but done. The board, according to one person familiar with the matter, "Was told, not consulted."

Mr. Zuckerberg owns 28% of Facebook’s stock, and controls 57% of its voting rights, giving him the freedom to act independently if he wants. Mr. Systrom, similarly, owns about 45% of his company. That control means investors must accept the fact that the CEOs can move quickly. 

NCAA Hoops: Shooting for Dollars

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The Wall Street Journal has an intriguing piece today about the most monetarily valuable NCAA basketball programs (if they could be sold like a professional franchise). Surprisingly, Louisville tops the charts. Not surprisingly, Indiana is No. 3, and Purdue made the top 20 at No. 18.

Oh, and congrats to "that team from the SEC" for winning the championship last night.

While Kansas and Kentucky battle it out Monday night for the national championship, college basketball’s real No. 1 will be sitting back on the sideline, counting its considerable cash.

The Louisville men’s basketball team is far and away the most valuable program in the sport, according to a recent study. Despite not even being the most prestigious team in its own state—that would be Kentucky, which beat the Cardinals on Saturday for a spot in the national-title game—Louisville would be worth an estimated $211.5 million if it could be bought and sold like a professional franchise. Kansas ($146 million) is second, while Kentucky ($73.7 million) stands a distant 16th.
 
Louisville head coach Rick Pitino, right, shakes hands with Kentucky head coach John Calipari before the first half of Saturday’s Final Four game.

Ryan Brewer, an assistant professor of finance at Indiana University-Purdue University Columbus, calculated the intrinsic valuations of 100 top Division I programs, including all 74 major-conference ones. Among other factors, the study examined each program’s revenues and expenses and made cash-flow adjustments, risk assessments and growth projections for every school.

Louisville blew away the field in part because of the massive revenues it has been making at the recently built KFC Yum! Center. The Cardinals, who began playing in the 22,000-seat arena in the fall of 2010, reported $40.9 million in revenue in the last fiscal year, according to government data—nearly $12 million more than any other team.

But conference-wise, the Big Ten came out on top. The Big Ten’s 12 schools have an average value of $68.3 million, followed by the Atlantic Coast ($58.2 million) and Big 12 ($50.2 million). The Big East ($40.3 million) is weighed down by its smaller members, while the Pac-12 ($35.0 million) and Southeastern Conferences ($30.7 million) are well behind.

Hat tip to Chamber staffer Ashton Eller for passing along the article.

Skills Shortage Leaves American Jobs Unfilled

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Workforce development and having a properly trained workforce is as critical as ever — and remains a very evident challenge in the United States. At the Indiana Chamber, we’re proud to have Ready Indiana as an affiliate program working to aid Indiana businesses and workers in this constant battle. (If you have any questions about workforce training opportunities or what the state has available that could benefit your business, contact Ready Indiana Concierge Kris Deckard at kdeckard@indianachamber.com.)

Scholars Thomas A. Hemphill and Mark J. Perry elaborate on this critical issue for The Wall Street Journal:

Following 12 straight years of declines, U.S. manufacturers added 109,000 workers to their payrolls in 2010 and another 237,000 in 2011. And in January of this year, the number of manufacturing jobs increased by 50,000.

Yet this vibrant sector is being held back—and not by imports. Instead there is a serious labor shortage. In an October 2011 survey of American manufacturers conducted by Deloitte Consulting LLP, respondents reported that 5% of their jobs remained unfilled simply because they could not find workers with the right skills.

That 5% vacancy rate meant that an astounding 600,000 jobs were left unfilled during a period when national unemployment was above 9%.

According to 74% of these manufacturers, work-force shortages or skills deficiencies in production positions such as machinists, craft workers and technicians were keeping them from expanding operations or improving productivity.

A majority of U.S. manufacturing jobs used to involve manual tasks such as basic assembly. But today’s industrial workplace has evolved toward a technology-driven factory floor that increasingly emphasizes highly skilled workers.

As Ed Hughes, president and CEO of Gateway Community and Technical College in Kentucky, accurately described the trend, "In the 1980s, U.S. manufacturing was "80% brawn and 20% brains, " but now it’s "10% brawn and 90% brains." This new trend, widely known as "advanced manufacturing," leans heavily on computation and software, sensing, networking and automation, and the use of emerging capabilities from the physical and biological sciences.

Faced with the shortage of skilled workers, manufacturers have begun joining with high schools, trade schools, community colleges and universities to train men and women with the right skill sets. In-house apprenticeship programs, a staple of the past, have largely disappeared, according to Dr. Peter Cappelli, director of the Wharton School’s Center for Human Resources. They’re too costly and time-consuming. Instead, he notes, companies are seeking out "just-in-time" employees who are already technically trained and ready to hit the ground running.

Obama’s NLRB Appointments Raise Concerns About Board

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The National Labor Relations Board has been in the news quite a bit lately, as we mentioned a couple of weeks ago on this blog. Now, President Obama’s latest NLRB appointments are drawing the ire of some concerned he may be creating an anti-business sentiment on the board. National Journal reports:

President Obama made three recess appointments (recently), filling vacancies on the National Labor Relations Board that were left open by Republican refusals to confirm appointees.

The appointments to the NLRB, a lightening rod for conservatives opposed to any expansion of labor rights, are Sharon Block, currently deputy assistant secretary for congressional affairs at the Labor Department; Terence Flynn, now the chief counsel to NLRB member Brian Hayes; and Richard Griffin, general counsel for the International Union of Operating Engineers.

Block’s appointment fills a vacancy left by Craig Becker, a former associate general counsel to both the Service Employees International Union and the AFL-CIO who was seated on the NLRB via a recess appointment in March 2010. Obama withdrew his appointment of Becker for a full term last month after it was fiercely resisted by Senate Republicans.

The NLRB appointments followed Obama’s controversial recess appointment of Richard Cordray to a new consumer board…

The Wall Street Journal also reports how business groups are less than thrilled about the appointments, or the manner in which they were appointed:

Unions applauded the appointments, which will likely earn Mr. Obama some goodwill with this key Democratic constituency heading into November’s presidential election. SEIU President Mary Kay Henry said Mr. Obama "showed true leadership" with his installments, a notable compliment given that last year, union leaders accused the president of being too willing to compromise with Republicans.

The International Union of Operating Engineers, which employs Mr. Griffin, said he is fair-minded and would provide "stability and balance to American workers and employers." The Senate Republicans that have tried to cripple the NLRB have a position "comparable to ejecting the referee if you don’t like the score of the game," the union said in a statement.

Business groups and Republicans disagreed. Sen. Mike Enzi of Wyoming, the ranking Republican on the Senate Health, Education, Labor and Pensions committee, said he was "extremely disappointed" in Mr. Obama’s decision to "avoid the Constitutionally mandated Senate confirmation process." Mr. Enzi said that two of the three nominees were submitted to the Senate on Dec. 15, just before the Senate was scheduled to adjourn for the year. That gave the Senate "only one day to consider and review these nominations," he said in a statement.

Some labor lawyers who represent employers suggested Wednesday that lawmakers might legally challenge Mr. Obama’s appointments. Senate Republican Leader Mitch McConnell stopped short of saying he would do so but suggested Mr. Obama might have overstepped his boundaries. The NLRB and consumer protection agency appointments "potentially raise legal and constitutional questions," Mr. McConnell said in a statement, adding that the ones at the NLRB "are particularly egregious."
 

EPA Actions a ‘Disgrace’

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Kudos to the Wall Street Journal for this well-timed and well-written reaction to yesterday’s EPA announcement:

At an unusual gala ceremony on the release of a major new Environmental Protection Agency rule yesterday, chief Lisa Jackson called it "historic" and "a great victory." And she’s right: The rule may be the most expensive the agency has ever issued, and it represents the triumph of the Obama Administration’s green agenda over economic growth and job creation. Congratulations.

The so-called utility rule requires power plants to install "maximum achievable control technology" to reduce mercury emissions and other trace gases. But the true goal of the rule’s 1,117 pages is to harm coal-fired power plants and force large parts of the fleet—the U.S. power system workhorse—to shut down in the name of climate change. The EPA figures the rule will cost $9.6 billion, which is a gross, deliberate underestimate.

In return Ms. Jackson says the public will get billions of dollars of health benefits like less asthma if not a cure for cancer. Those credulous enough to believe her should understand that the total benefits of mercury reduction amount to all of $6 million. That’s total present value, not benefits per year—oh, and that’s an -illion with an "m," which is not normally how things work out in President Obama’s Washington.

The rest of the purported benefits—to be precise, 99.99%—come by double-counting pollution reductions like soot that the EPA regulates through separate programs and therefore most will happen anyway. Using such "co-benefits" is an abuse of the cost-benefit process and shows that Cass Sunstein’s team at the White House regulatory office—many of whom opposed the rule—got steamrolled.

As baseload coal power is retired or idled, the reliability of the electrical grid will be compromised, as every neutral analyst expects. Some utilities like Calpine Corp. and PSEG have claimed in these pages that the reliability concerns are overblown, but the Alfred E. Newman crowd has a vested interest in profiting from the higher wholesale electricity clearing prices that the EPA wants to cause.

Meanwhile, the Federal Energy Regulatory Commission, which is charged with protecting reliability, abnegated its statutory responsibilities as the rule was being written.

One FERC economist wrote in a March email that "I don’t think there is any value in continuing to engage EPA on the issues. EPA has indicated that these are their assumptions and have made it clear that are not changed [sic] anything on reliability . . . [EPA] does not directly answer anything associated with local reliability." The EPA repeatedly told Congress that it had "very frequent substantive contact and consultation with FERC."

The EPA also took the extraordinary step of issuing a pre-emptive "enforcement memorandum," which is typically issued only after the EPA determines its rules are being broken. The memo tells utilities that they must admit to violating clean air laws if they can’t retrofit their plants within the EPA’s timeframe at any cost or if shutting down a plant will lead to regional blackouts. Such legal admissions force companies into a de facto EPA receivership and expose them to lawsuits and other liabilities.

The economic harm here is vast, and the utility rule saga—from the EPA’s reckless endangerment to the White House’s failure to temper Ms. Jackson—has been a disgrace. 

Is the U.S. a Nation of Takers?

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Some chilling statistics from a Wall Street Journal article illustrating an alarming paradigm shift in the U.S. manufacturing sector. The conclusion seems to be: As long as the manufacturing sector is dwarfed by the current size and continued growth of the public sector, American states are in for a bevy of financial problems. So anyway, this doesn’t seem too encouraging. If you have a take on this that’s borderline positive, please share in the comments section as we could all use some good news after last night’s game.

If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.

It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments is the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills?

Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods. Consider California, which has the highest budget deficit in the history of the states. The not-so Golden State now has an incredible 2.4 million government employees—twice as many as people at work in manufacturing. New Jersey has just under two-and-a-half as many government employees as manufacturers. Florida’s ratio is more than 3 to 1. So is New York’s.

Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital, have more government bureaucrats than people making things. The leaders in government hiring are Wyoming and New Mexico, which have hired more than six government workers for every manufacturing worker.

Now it is certainly true that many states have not typically been home to traditional manufacturing operations. Iowa and Nebraska are farm states, for example. But in those states, there are at least five times more government workers than farmers. West Virginia is the mining capital of the world, yet it has at least three times more government workers than miners. New York is the financial capital of the world—at least for now. That sector employs roughly 670,000 New Yorkers. That’s less than half of the state’s 1.48 million government employees.

Hat tip to Chamber staffer Glenn Harkness for the article link.

Business Tax Advantage Goes to Canada, Others

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Some in Indiana and beyond are acknowledging that high corporate tax rates are putting American businesses at a competitive disadvantage. Canada is the latest to institute a cut, joining various Asian and European nations with rates that are less than half of the U.S. federal rate of 35 percent. The National Center for Policy Analysis summarizes a Wall Street Journal article:

It was not long ago that Americans viewed Canada as a poorer neighbor with only one competitive advantage — in hockey.  No more: On January 1, Ottawa cut the nation’s corporate tax rate to 16.5 percent from 18 percent, compared to the U.S. federal rate of 35 percent, reports the Wall Street Journal.

Canada started cutting corporate taxes in the 1990s under the Liberal government of Paul Martin and has since enjoyed a virtuous cycle of investment, job creation and growth.  The trend has continued under Conservative Prime Minister Stephen Harper, who has pledged to take the rate to 15 percent by 2012.  Even Canada’s Socialist-run provinces have followed suit by lightening the tax burden on business.  This is part of a global trend, as noted by a European Commission report.

  • The European Commission report last year noted that Europe’s average corporate tax rate has dropped below 25 percent.

  • By contrast, the U.S. rate is close to 40 percent if you add state corporate taxes to the federal levy.

Relative levels of taxation matter because companies and investors send capital where it can achieve the highest returns.  U.S. companies often pay a lower effective tax rate thanks to loopholes, but the variability leads to economic inefficiency and investment distortions.  Low marginal rates have helped the likes of Hong Kong (16.5 percent), Singapore (17 percent) and Ireland (12.5 percent) attract capital, while the high U.S. rate keeps hundreds of billions of dollars from coming to America from offshore, says the Journal.

WSJ: Pence for President in 2012?

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I know, I know. This is likely one of umpteen articles you’ll encounter on this subject, but it’s from the Wall Street Journal so I figure it warrants mentioning. Though Mike Pence is now considered by many to have a firm grip on the 2012 Indiana Governor’s race should he choose to enter, some speculate he may not be such a longshot to earn the GOP nomination for President.

A former radio personality, the 51-year-old Mr. Pence became a darling among fiscal conservatives for opposing two of President George W. Bush’s signature initiatives, the 2001 No Child Left Behind education act and the 2003 Medicare Part D drug benefit. He saw both as violating his party’s small-government principles.

Mr. Pence favors reducing the size of the federal government, and even the power of the presidency. He wants to amend the Constitution both to ban abortions and to allow marriage only between men and women. He says increased security along the Mexican border must precede any immigration overhaul.

Mr. Pence was also among the first congressmen to jump on the tea-party wave in early 2009, speaking at rallies across Indiana and in Washington.

It was his speech at the Values Voter Summit, a marquee annual event among social conservative groups, which did the most to rouse support. The speech, with its calls to ban all federal abortion funding and stem-cell research, drew standing ovations and chants of "President Pence."

When summit attendees cast ballots in a straw poll for president, Mr. Pence came in first, ahead of former Arkansas Gov. Mike Huckabee, former Alaska Gov. Sarah Palin and others.

For many conservatives, Mr. Pence holds much the same allure that Mr. Huckabee did in the 2008 campaign. Mr. Huckabee tapped into support from home-schoolers and evangelicals to pull off a surprise win in the Iowa caucus, though could never catch Sen. John McCain (R., Ariz.), the eventual nominee.

"The big question with Huckabee is whether he can raise enough money to be a real contender in 2012," says Tom Minnery, head of public policy for Focus on the Family. As a fresher face, he says, Mr. Pence "is someone who could generate a lot of enthusiasm" in Iowa and other early nominating states and possibly show more durability in the long presidential campaign.

The Indiana lawmaker, who first won election to Congress in 2000, also has the backing of budget hawks such as Chris Chocola, a former Indiana congressman who is now president of the fiscally conservative Club for Growth. "Mike has the retail appeal of Huckabee but is an across-the-board conservative with all the credentials. There is no one else like that," says Mr. Chocola.

Feeding speculation about his presidential ambitions, Mr. Pence has visited Iowa, New Hampshire and South Carolina in the past year, all states with early roles in the nominating process. And yet Mr. Pence and others in his camp continue to drop hints that he’s shying from a White House run. The thought of a presidential campaign, Mr. Pence said in an interview, "is more humbling than tempting."He says he’s weary of Washington. "I prefer the Flat Rock River to the Potomac River, and the Flat Rock is about a half a block from my house," he said.

Job Market Not All Bad News for Gen Y

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Syndicated career advice blogger/author Penelope Trunk, whose Twitter feed is actually pretty amusing and insightful, offers her thoughts via bnet.com about why Generation Y is right to be optimistic about the future. Some interesting and encouraging words for those seeking work:

We read about how scared young people are, and how desperate they are for a job, but we don’t hear the other side: That young people are optimistic about their careers, their future and are doing well in the American economy. Underreported stories: Washington, D.C. is the easiest city to find a job, and young people love government jobs; farming is in a renaissance, and the local food movement is teeming with young people; healthcare and teaching are both booming; and while service-oriented work is hated by the top-down, rank-oriented mindset of baby boomers, Gen Y is much more collaborative and happy to work in the service sector.

Here’s another bit of evidence of Gen Y optimism: The Wall Street Journal reports that applications to business schools are down 2%. That’s a small decrease, but business school applications historically go up in a bad economy, and they stay up until things get good again. That applications are down is evidence that young people do not perceive the job market as terrible.

As the country moves to a knowledge-based economy, most Americans can no longer expect to earn more than the generation before them. In fact, Don Peck, writing in the Atlantic, explains that as the economy recovers it will look permanently different. This will not be a recovery where the skills of older people come back into demand; the jobs that emerge will be in new sectors, and the financial expectations of employees will permanently shift because of the new realities…

Additionally, the demographics of the U.S. workplace favor Generation Y: As baby boomers retire, Gen X, which is only half the size of Baby Boomers, cannot replace them. So there will be a significant worker shortage in the U.S. by 2015. Generation y will benefit from the worker shortage. They will get higher paying jobs faster, they will go up the corporate ladder faster, and they will be able to remake the workplace in their own image without much resistance.

You can call Gen Y entitled, or delusional, or self-centered, but Gen Y has a gift for reframing situations in a positive light. This is a gift that stems from the parents of gen Y being obsessed with self-esteem. Self-esteem breeds optimism, and this optimism makes Gen Y emotionally able to fend off the recession better than other generations.

Interns: They Will Light Up Your Life

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I’m not sure what to make of this, but it’s related to business and internships and this video is hot right now — so it’s going on our blog. Meet Cisco’s rapping intern:

If you’d like an intern of your own — rapping or otherwise — check out our fine affiliate program, Indiana INTERNnet. The INTERNnet team, led by executive director Pam Norman, is doing an amazing job connecting Indiana businesses with eager interns. You can also follow the program’s blog at www.indianainternnation.com.