The Ski Season and the Fiscal Cliff: Happy Holidays

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Skiing and the fiscal cliff have never before been written about in PW Insight and I suppose are rarely uttered in the same breath. But both are topical, actually have lots in common and are certainly part of this year’s holiday rhetoric.

Snow Summit

Snow Summit in Big Bear, California
(Photo Credit: Flickr: Cary N)

I learned to ski relatively late in life — at 40 — when my wife could still say she was 30-something, my daughter just turned 10, and my son was nine.  Some friends took the family to Big Bear, a Southern California resort that is just so-so as far as skiing is concerned, but an easy drive from most parts of Los Angeles.

My pal, Tod Paris, a CFO by day and sadistic amateur ski instructor when on the slopes with adult beginners on the weekend, started me out on what he said was the least daunting hill.  “Pizza, pizza,” Tod screamed.  Skiers know that pizza has nothing to do with food.  I fell, bruised my ribs, hurt my right ankle. I was frightened and swore that I would never ski again.

My family, however, did well.  So my swearing aside, to keep up with them, I eventually engaged several real instructors, each of whom instilled their own styles and methods to keep me standing and allay my fears.

Fast forward 20+ years.  The ski season is about to get under way, and I am excited. When I look back, what seemed like the steepest, scariest slopes then do not look so bad today at all.

Likewise, could it be that all the fears about the looming fiscal cliff — metaphorically a double black diamond that is being talked about non-stop — also will dissipate?  Los Angeles Times journalist Doyle McManus in an editorial last week called the fiscal cliff merely a slope that in reality “may not be as alarming as it sounds.”

With the holidays just around the corner, some progress is being made, although few believe a final resolution will be reached before the end of the year.  Both sides of the political spectrum are offering their ideas, perhaps akin to ski instructors espousing various teaching methods, and both sides are talking about meeting “somewhere in the middle.”  (How ’bout at the Mid-Chalet Café?)

Let’s also not forget that the tax increases set for the first of the year can be delayed by Congress, or as McManus wrote, “… by a stroke of Timothy F. Geithner’s pen.” Federal spending cuts can be slowed down as well.

So while there will likely be some pain ahead, just as there is on those first runs every season even for experienced skiers, let’s keep our wits and our faith that those Washingtonians in charge will lead us down the path in the least hurtful way.

Happy Holidays.

— Roger Pondel, rpondel@pondel.com

Special Dividends in Vogue as Fiscal Cliff Looms

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Many companies these days seem to be declaring special year-end dividends.  And the list of businesses doing so is growing like wildfire.
 
Ahead of an expected tax increase in 2013, public companies are doling out early holiday gifts to their shareholders.  The current 15 percent tax rate on dividends could increase to more than 43 percent next year for top wage earners, making special dividends especially attractive to companies and their shareholders.
 
Among the latest on the dividend bandwagon are Disney, which increased its usual year-end dividend by 25 percent, Las Vegas Sands Corp., which nearly doubled its usual year-end dividend, and Costco Wholesale Corp., which declared a $3 billion payout to shareholders.
 
According to Bloomberg, more than 70 companies in the Russell 3000 stock index have announced a one-time cash payment to shareholders since September.  This is up from only 15 businesses in the prior-year quarter.  More than a dozen of the 70 companies the wire service highlighted pegged their actions to pending tax increases, but it’s a good bet that many of the others had similar reasoning.  Investor’s Business Daily reported that as of November 28, 173 companies had announced special dividends in the month of November.  More payouts are expected to occur as we inch closer to the end of 2012.
 
And it’s not just new dividends that are being declared.  Wal-Mart moved the payment of its fourth-quarter dividend from January 2 to December 27, while H.J. Heinz Co. accelerated its payment as well.
 
Some believe these dividend payments could boost holiday retail sales.  Jason Ader, head of Ader Investment Management and a former Wall Street analyst, believes that dividend payments arriving prior to Christmas “may very well help Christmas sales, along with having a multiplier effect in terms of credit and borrowing.”
 
At least one investor, however, does not agree with the recent spate of announcements.  During a recent interview with NPR, Jim Paulsen of Wells Capital Management said that companies should be looking for ways to increase their growth prospects rather than “handing out gifts to shareholders.”
 
As companies continue to jump on the proverbial bandwagon and contemplate whether to declare a special dividend, it’s important to remember that each organization’s circumstances are different, and not everyone may benefit from taking the leap.
 
In the interim, maybe we all can take a lesson from Wile E. Coyote.

 

 

— Laurie Berman, lberman@pondel.com
 
 

Video: The Next New Thing in Earnings

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We can’t stress enough the importance of video and its pervasive use in today’s media landscape.
 
Aside from the sharing benefits and vast potential online media pickup, video creates stronger bonds with key audiences.  It’s why we love movies so much.  There’s no other medium that produces the same visceral effect.
 
Publicly traded companies are starting to realize this trend.  Early adopters are using this medium to complement quarterly earnings, embedding video links in press releases as we did for our client (see above), Kirkland-based Market Leader, Inc. (Nasdaq: LEDR).  Done right, videos that accompany press releases of all kinds should be news driven versus corporate slick, delivering more authenticity that is designed for viral uptick.  Other companies that have used video for earnings include Dell, Citi, BASF, and InterContinental Hotels.
 
Leveraging video to communicate financial results can be quite daunting however, especially since these platforms are relatively new to investor audiences.   While the SEC’s Office of Compliance Inspections and Examinations offers guidance on the use of social media for investment advisers, the bottom line boils down to best company judgment, and of course, input from counsel.
 
Professional investors are watching too.  According to a study, 58 percent of institutional investors and sell-side analysts in the U.S. and Europe believe new media will become more important in helping them make investment decisions.
 
There’s no doubt that using social media to communicate to investors remains a fairly prickly topic among CEOs and the investment community.  The reality is that more Fortune 500 companies are blogging, tweeting and utilizing new media platforms to communicate to key audiences in ways never before.  Moreover, engaging in video builds social capital, a valuable network that ultimately enhances reputation, and we believe shareholder value, too.

 

— George Medici, gmedici@pondel.com
 
 

The Swinging Pendulum

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There was a time when most investor relations professionals had either financial journalism or public relations backgrounds and applied their specialty communications skills to publicly traded companies.
 
Then there was a wave of IR executives entering the field with finance, investment banking and analyst backgrounds. What such backgrounds may have lacked in writing and mass communications skills typically were offset by technical financial acumen.
 
Now, yet another new surge of IR professionals is surfacing as Roger Pondel reports in a recent bylined article for NIRI’s IR Update titled, “The Road to the C-Suite.” Pondel also points out in the embedded video that these new IR folks not only have the financial chops, but are equipped with the necessary DNA to understand the more complex world of today’s media.
 
While today’s new-wave pros typically are on career tracks in IR, those who entered the field from financial roles may well be headed back to their roots. But no worries, in many cases, they are traversing the path to becoming CFO.

 

— George Medici, gmedici@pondel.com
 
 

What They’re Still Sayin’ about Payin’

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Say on Pay

Photo credit: Flickr, Tind

With proxy season nearly upon us, a couple of thoughts may be in order about Say on Pay, one year after
we first blogged about these new guidelines going into effect.
 
On the positive side, last year nearly all companies had their executive pay plans approved by at least a majority of their shareholders, according to a recent research report from IR Insight in a survey of 181 companies.  Moreover, the vast majority of the companies received a “yes” vote from 70 percent or more of their shareholders on their executive pay plans.
 
With only two companies surveyed receiving a majority of “no” votes, Say on Pay is nevertheless not lessening in importance.
 
“Egregious pay packages are by and large a thing of the past,” according to Robin Ferracone, a consultant with Farient Advisors, an independent executive compensation firm.  Ferracone believes that investors were “forgiving” last year.  She said institutional investors are set to grade companies’ pay plans “a lot harder” in 2012, although if companies’ performances and the markets improve, investors may not question executive pay much at all.
 
Narrowly approved pay plans may not be out of the woods.  Modest changes to the investor base could put these companies in jeopardy of receiving enough “no” votes to reject the pay plan.  Executive compensation experts advise corporate secretaries and investor relations officers to contact top holders at these companies to learn about investor concerns, and either explain the purpose of the questionable provisions, or modify the plan.
 
Going forward, the expectation is investors will more closely scrutinize how executive pay is
determined.  They want to see companies disclose how they have appropriately aligned performance with pay.  Ferracone believes this means more use of objective criteria, benchmarking and third-party diagnostic tools.
 
Finally, the SEC has delayed until the second half of 2012 the final rules on a number of pay disclosures under the Dodd-Frank Act.  Ira Kay, managing director at Pay Governance, a firm that provides independent executive compensation advice to boards, says the “pay versus performance” disclosure rules are difficult to craft, and the SEC may get ideas from companies tackling the issue on their own.  We’ll soon see.

 

— PondelWilkinson, investor@pondel.com
 
 

Wage Disparity Rages On

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Women's salaries are still lower on average than men's

Women’s salaries are still lower on average than men in the same career

A recent study by GMI Ratings showed a $215,000 disparity between the salaries of male and female CFOs.
 
CFO Magazine noted that the study looked at several factors that impact CFO pay, including company size, market cap, age and tenure in the position.  Total average compensation for the men, including salary, bonus, and stock awards, was $1.54 million versus $1.32 million for women.
 
Why do women earn less?  Is gender discrimination at play?  One of the study’s authors surmised that, “It is possible that women are more likely than men to advance through promotion from within a single company.  Many firms tend to pay more when making outside hires, which could lower women’s compensation levels.”  The report also cited possible shorter work histories for women, even when they are the same age as men, because they are more likely to interrupt their careers to raise children.
 
SteveTobak, a consultant and contributor to CBS, has some ideas of his own.  He believes that, among other things, women and men may not negotiate in the same way and that compensation is a complex discussion at the CFO level. He also noted that women and men may not be similarly motivated by the same factors, with women weighing non-compensation factors such as work flexibility, security and benefits more heavily than men.
 
Based on 2010 census data, Bloomberg recently reported that the six jobs with the largest gender gap in pay are in the financial sector, with women earning 55 to 62 cents for every $1 made by men.  However, it appears the gender gap is starting to close with the median-pay disparity for all occupations at 77 cents for every $1 earned by men, an improvement from 61 cents during the last 50 years.
 
Whatever the reason for the inequality, the debate about why it exists rages on.  While on the surface it certainly seems that men and women should be paid the same for the same job function, there are clearly many factors at play.
 
If you’re a woman who wants to earn more than your male counterpart on Wall Street, Bloomberg recommends (tongue in cheek, of course) that you set up a shoe-shine stand in Lower Manhattan. Female personal care and service workers earn $1.02 for every $1 made by their male colleagues. Go figure.

 

— Laurie Berman, lberman@pondel.com
 
 

This Time, It’s Real

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On this, the first business day of the second quarter of 2012, everyone seems to be writing and talking about the spring in this year’s early spring.  No, not the weather, but the economy and how, this time, the rebound finally seems real and sustainable.
 
In early 2010, we, and most others, thought things were turning around.  We even asked our landlord about the two vacant offices adjacent to our suite in Century City.  Glad we didn’t sign on.
 
Then again in early 2011, the economy once again appeared to be heading in the right direction. But, alas, hopes were dashed, and it stalled again.
 
Today, it not only feels different, but the facts seem to be saying so, too.
 
Jobs are being created and unemployment is falling.  According to our client, Greg Palmer, CEO of staffing industry advisory firm Greg Palmer and Associates and his Palmer Forecast™, the use of temp help among businesses throughout the nation is on the rise, one indicator that good things are in store.
 
Last week, nine companies went public, the most IPOs in one week in more than 15 months.  More than 200 companies have filed with the SEC and are waiting in the wings.
 
Even James Surowiecki, who writes the Financial Page column in my favorite magazine, The New Yorker, recently wrote, “…there are at least a couple of reasons to think that, this time, we aren’t looking at a false spring.”
 
The two reasons, according to Surowiecki, are autos and housing.
 
Pent-up demand for autos is morphing into active demand.  Our client, the nation’s largest wheel manufacturer Superior Industries, is operating at near capacity.  And client Autobytel just recorded its first full year of net income since 2004 fueled by many positive changes within the company but also buoyed by the industry’s recovery.  New car sales fell from a pre-recession annual peak of 17 million to just over 10 million in 2009. The seasonally adjusted annualized (SAAR) forecast of new car sales for March is estimated at 14.3 million, down from last month, but up from 13.0 a year ago and the highest since August 2007.
 
As to real estate, things look better there, too. PondelWilkinson client Market Leader, which provides more than 100,000 real estate professionals throughout the United States and Canada with online technology and marketing solutions, delivered 39% revenue growth last year in what can conservatively be labeled a challenging, aka, stinky, environment.  The latest National Association of Realtors forecast predicts that existing home sales and prices, along with new home sales and housing starts all will be up for 2012 and will rise even more in 2013, with continued low (but climbing a little next year) mortgage rates.
 
The 2012 first quarter was outstanding in the stock market as well, to the tune of 900 points on the Dow.  In fact, it was the best Q1 for the Dow in 14 years and the best for NASDAQ in 21 years.
 
So welcome to Q2. Let’s all do our best to keep the momentum going and not let the media pundits in yesterday’s newspapers, television shows and blogs dampen our enthusiasm with their commentary about the prospect of a slip and the anxiety that is creeping back into the markets, as New York Times’ Nathaniel Popper and others  believe.  After all, yesterday was April’s Fool day.

 

— Roger Pondel, rpondel@pondel.com
 
 

JOBS Act to Jumpstart IPOs

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IPO

By most accounts, the JOBS Act will likely become law and the rules for new issues should help to streamline and ease the IPO process.
 
Yesterday, the Senate passed he Jumpstart Our Business Startups Act (JOBS Act) (73-26 votes) with broad bipartisan support.  Its version of the JOBS Act will require approval from the House of Representatives (remember that a few weeks ago the House voted 390-23 in favor of a similar version of the law), after which it will go directly to President Obama’s desk for signature.  The White House has previously endorsed the legislation.
 
According to a recent report from the legal minds at Latham & Watkins, the JOBS Act, which is a combination of several different bills, contains certain IPO-related provisions related to corporate governance and financial reporting standards that should:

     

  • make it easier to go public;
  • provide significant cost savings for the IPO process;<
  • allow issuers to gauge investor interest before filing a registration statement;
  • permit confidential initiation of the SEC registration process;
  • streamline the requirements for financial statements;
  • permit analyst research immediately after the IPO; and
  • provide transitional relief for some companies up to five years from more costly requirements such as hiring an independent auditor.

 
Those supporting the bill believe it will encourage small businesses to grow and hire more workers. Further streamlining the IPO process enables companies to gain access to needed growth capital to fuel their expansion needs.  Reducing red tape should give an added boost to entrepreneurs seeking to launch new business start-ups, but it also could spur others to illicitly benefit from less stringent rules at the Securities and Exchange Commission.
 
While this should be viewed as a positive step forward, it also reminds investors of all stripes to carefully seek out and read all company filings before laying down the green.

 

— PondelWilkinson, investor@pondel.com
 
 

Greed: Good or Evil?

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Cover of Wall Street (20th Anniversary Edition)

Economists persuasively argue that greed encourages effort, discovery, invention – it motivates us to take risks, come up with new products, enter new markets and make enterprises more efficient. Soon after the memorable line, “Greed is Good, Greed is Right, Greed Works,” was uttered in the movie “Wall Street,” much was and continues to be written about the economic and psychological impact of greed.
 
Evolution may have programmed us to be greedy, since greed keeps us motivated to achieve a genuine state of happiness, according to Jay Phelan, an economist, biologist, and co-author of Mean Genes.  Echoing that thought, some psychologists say greed is the only consistent human motivation.
 
Today, however, increasing numbers of mental-health professionals are saying that greed is not nearly as good for people as it is for economies.  Some have begun warning that greed is beginning to overwhelm conscience, reason, compassion and family bonds.  Psychologist David Farrugia sees greed as a mistaken, empty and shortsighted goal that contains many seeds of destruction.  In his article, Selfishness, Greed, and Counseling, Farrugia says, “a chronic orientation toward greed has been shown to result in inflexibility and diminished reality testing.”
 
This likely explains the brazenness of Bernie Madoff, Raj Rajaratan and, now, the seven defendants recently charged in the U.S. District Court in Manhattan by Federal authorities with securities fraud involving insider trading.
 
SEC Enforcement Director Robert Khuzami said, “These are not low-level employees succumbing to temptation by seizing a chance opportunity, [but] …. sophisticated players who built a corrupt network to systematically and methodically obtain and exploit illegal inside information again and again.”
 
Bottom line:  While greed may indeed drive us in ways that have positive effects on behavior, it also has proven to wreak havoc and shatter lives.

 

— PondelWilkinson, investor@pondel.com
 
 

On Kindness and Leadership

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Most of us want to work for a boss that is kind and fair.  Paradoxically, however, when looking for a leader we also equate kindness with weakness, and selfish aggressive behavior with strength, according to a recent study conducted by researchers at the Kellogg School of Management, Stanford Graduate School of Business and Carnegie Mellon University’s Tepper School of Business.
 
The study said that being selfish makes “you seem more dominant and being dominant makes you seem more attractive as a leader.”  And, “people who are generous or altruistic can appear weak or gullible.”
 
This is an explanation, at least in part, of why we get corruption.  People who are more likely to be moral, kind and pro-social are least likely to be elected to leadership roles, and the likelihood of corruption and malfeasance increases because we have the wrong people in positions of leadership.
 
Indeed, these findings on how we perceive dominance and weakness (when it comes to leadership) are likely what is behind the frustration and anger of the “Occupy Wall Street” protesters.  The news of outrageous salaries and bonuses for CEOs and the government using taxpayer money to bailout big banks is all too familiar, while many average citizens cannot find work or have to work more for less pay.
 
Joe Dear, chief investment officer of California Public Employees’ Retirement System, said recently that people are waking up to the fact that the game appears to be rigged. A helpful first step for fairing up the game may be to begin viewing kindness, fairness and altruism as strengths in business leaders, and selfish behavior as reason to look for a new CEO.

 

— PondelWilkinson, investor@pondel.com