new dog old trick

Carnival of the Capitalists - 30 August 2004

Come one, come all, the carnival is here at New Dog Old Trick all this week. Here in the New Dog's domain of Southern California, the big entertainment event of the week isn't the carnival but the 25th anniversary edition of the fantastic Long Beach Blues Festival, which starts this coming Saturday, which is still during my stewardship of the COTC. So we have erected the carnival midway right outside the entrance to the Blues Festival on the campus of Cal State Long Beach. Yes, it's the extra special End of the Summer Blues Festival edition of COTC. Don't let the music disturb you, just enjoy it in the background while you read this week's engaging collection of business and economics entries.

Looks like our first blues act is getting ready to take the stage at the Blues Festival, so while we listen to a few selections from Little Charlie and the Nightcats, let's introduce our first COTC posts.

We'll open the show with a very timely topic, given that the closing ceremonies of the Athen's Olympics are on television as I'm writing this, as Martin Lindeskog wonders if the Athens games will be a replay of Montreal's - in economic terms, that is.

Elliott Fladen posts at The Fladen Experience about a major reason why government projects in the U.S. cost so much in The Problems of Prevailing Wage Law.

Kinayda Kix at Kin's Kouch ("more rantings from someone who should know better") on the new overtime rules - Working Overtime to Bash Bush. He suggest that liberal commentators may be distorting the effect of the new overtime regulations to score political points. I suspect that this is not the last we'll hear about the new overtime regs. on COTC.

Brian Gongol posts at Gongol.com ("It's like Fark for Capitalists" - what a great image!) that Germany Learns that Progress and Growth Must Come First.

Lisa Haneberg's a first-time COTC contributor, so we're going to give you all a double helping of Management Craft. First up a post on the value of the Socratic approach as a coaching tool in Questions for Coaching. Also, in what may be a first for COTC (somebody check the record book), a business poem titled Business Poem #1 - Oh Overwhelm.

The Charlotte Capitalist, aka Andy Clarkson, improvises around a classic Seinfeld riff in You Don't Even Know What Capitalism Is .

How about a nice hand for Rick Estrin, Little Charlie Baty, and the rest of the band! For more from Little Charlie and the Nightcats, check out Deluxe Edition on Alligator. And how about those bloggers - let's hear it for them too. While we're waiting for Rod Piazza and the Mighty Flyers to set up, let's go ahead and introduce our next set of webloggers.

Trudy W. Shuett of WOLves is baring her soul and opening up her job search for all to see in Professional Blogger for Hire, which is the third post in her Transparent Job Search series. I suspect Trudy would be happy if this were a short series - so somebody hire this woman!

Arnold Kling's Business and Health Care Costs at EconLog talks about one of the hot issues for business owners, management, and employees. It points to a good essay by Kling that's at Tech Central Station.

Jim Stroup at Managing Leadership continues his interesting discussion of Prof. John Adair's comments on Stroup's book, Managing Leadership. This week its Prof. John Adair on leaders, leadership, and teams.

Jeff Cornwall searches The Entrepreneurial Mind and sees good economic news in the fact that VCs were busy in Q2.

John Beck of the INCITE weblog improvises using Harvard Professor Ted Leavitt's classic theme Marketing Myopia. John's comparing today's modern mass media to yesterday's railroads, read about it at Marketing Myopia. I think John's on the right track (sorry, couldn't help myself).

David Tufte of voluntaryXchange ("It's as intrinsically human as opposable thumbs!") on (Money is) Memory is Sex. I wonder if his weblog's slogan is even more appropriate than usual, given the subject?

Hey Hey, that was Miss Honey Piazza on piano - she learned it directly from that great Chicago master himself, Otis Spann. And that's her husband Rod on vocals and playing that hot west coast-style harmonica. Look for their great new CD, Keepin It Real, on Blind Pig Records. Now it's time to introduce our next performer and our next set of webloggers. The next performer on the stage is James Harman - that's right, that most dangerous gentleman, the king of greaser blues. And James's special guest is guitar wizard Kid Ramos. While they're kicking off their set, please continue reading our next set of bloggers.

Fellow Southern California resident, (Prof.) Steve Bainbridge of the eponymous ProfessorBainbridge.com expounds in his usual meaty fashion on The SEC's Futile and Misguided Efforts to Clamp Down on Inside Information, With Notes on Why Individual Investors Should Not Directly Invest in Stocks. The title says it all, as he's talking about how the SEC is playing whack-a-mole: as soon as they crack down on one channel of inside information, another one pops up. Therefore, (says the Prof.) individual investors would generally be much better off holding a diversified mutual fund.

Yet another Los Angelino, Dave Sheridan at no illusions, talks about a favorite California subject - immigration - in Immigration's Costly Hypocrisies.

Tim Worstall ("It's All Obvious or Trivial Except...") rocks on about Ehrlich Again. Man, I thought Paul Ehrlich's use-by date expired years ago. Ehrlich's obviously decided that since people don't agree with him, we need to legislate his right to think for the rest of us.

Barry Ritholtz keeps us all focused on The Big Picture with a follow-on to a great post he did about a month ago concerning the broken business model in radio; the new post is Losing the Signal.

Blog Business World's Wayne Hurlbert warns website owners to be cautious about who they believe regarding search engine optimization in Beware of Bad SEO advice.

David Foster at Photon Courier has the word about a very unusual application of artificial intelligence/computer vision technologies. It scares me that this thing might know what I'm going to order at Mickey D's before I do. Check it out at Strange But True.

Put your hands together for James Harman, Kid Ramos, and the last set of webloggers. Look for James's most recent CD, Lonesome Moon Trance, on Pacific Blues records.

Next up, that veteran and distinguished blues harmonica player, Charlie Musselwhite. Charlie's going to share the stage with one of the hottest young blues players out there today - Keb' Mo'. Give it up for Charlie, Keb', and our final batch of webloggers.

Joe Kristan at the Roth & Co Tax Updates weblog have got a tax court case you have to read to believe. The title gives you a hint: Imbibe and Invest? The Dangers of Trading While Tippling.

Ashish Hanwadikar, in his weblog Ashish's Niti (Niti in Sanskrit means policy/strategy/vision), posits that Everybody loses in restricting trade.

Jonathan Wilde of Catallarchy submits a post by Patri Friedman wherein the author muses on why good people vote for harmful policies, and why choosing via the market is better than voting via politics in Hope vs. Belief, Part II: Voting is Bad, Choice is Good.

Anita Campbell of Small Business Trends posts on an interesting tool by Blogpulse that shows what bloggers say is important in the eyes of small business in What Does Small Business Care About?

Mike Pechar, a known Interested Participant, tells us about the impact of the recent elimination of bus connections in hundreds of small towns in the U.S. in Greyhound Lines Downsizing.

Russell Buckley from Mobile Technology Weblog finished cleaing up after last week's Carnival (thanks Russell!) in time to look at the issue of mobile coupons (coupons sent to people's cellphones) and how it might work on a practical level; he chimes in at Mobile Couponing.

I'm giving myself the last word for this week. In my post Gartner Group interviews Clayton Christensen I point to and discuss a little bit about an interview of Christensen that is posted in the public area of the Gartner Group website. Christensen's books, particularly the recent The Innovator's Solution, are already classics. The last third or so of the interview has an interesting discussion of how to operationalize one of the most interesting concepts in The Innovator's Solution.

Give it up people! Let's give all of our webloggers a great big hand for those thoughtful and interesting posts! And let's give our last blues performers, Charlie Musselwhite and Keb' Mo' a hand. For more from Charlie, his latest CD Sanctuary is on Real World records; Keb Mo's latest is Keep It Simple on Sony.

That brings the Blues Festival Special Edition COTC to an end. Those were some great business and economics posts mixed in with some great blues music. Tune in next week for the Carnival of the Capitalists, which will be at Joe Grossberg ("My Bullshit, Your Brain"). Send your entries to capitalists -at- elhide -dot- com.

And if you can't come to the Long Beach Blues Festival on Labor Day weekend, you can listen to great blues music via the internet on Saturday afternoons from 2pm Pacific time until 9pm and Sunday afternoons from 2pm until 5pm Pacific time. Just go to the website for radio station KKJZ of Long Beach, CA. Support America's indigenous musical forms!

Thanks to all of our contributors. And thanks to all of you for dropping on by. Come back any time.

Day game at the old ballyard

The wife has been out of town since Tuesday morning and I've been doing nothing but working, so I went online yesterday evening and bought a ticket to this afternoon's Angel's game. I hadn't been to see the Angels live for three years. I spent most of the past two summers either sick, in the hospital getting ready for or recovering from surgery, or at home recovering from one surgery or another plus dealing with chemotherapy side-effects. I did get to watch a lot of baseball on television those two years - lots more than I'd seen for years. I think I saw every one of the Angel's playoff and World Series games two years ago.

It is great to be at the ballpark on a bright sunny afternoon. I lived in Chicago for a number of years, back before they started playing even a few night games at Wrigley Field. Plus when I was a kid back in Ohio we always went to Cleveland to see the Indians on a Saturday or Sunday afternoon. And my little league and high school baseball games were never under the lights. So while I've seen lots of night baseball on television or listened on radio, and I've certainly been to night games live, what resonates with me is baseball in the afternoon.

On top of the pure pleasure of just going out to the stadium for a 1:05 pm first pitch, the Angels have been playing great baseball. They started today one game out of first in the West and had won nine games in a row. So hopes were high as I headed out to the game.

Read my lips - it's the healthcare stupid

As quite a few business and econ webloggers have noted, healthcare is one of most important issues facing our economy in the minds of lots of small to medium-sized business owners and entrepreneurs. And, I might add, to lots of ordinary working and retired folks. Yet the level of dialog on proposals to try to address the problem is very low. It's also a personal hot button issue for me (full disclosure here) as I'm a recently minted cancer survivor who is just beginning to understand the impact of that fact on my ability to get insurance as I look to start a new business.

Jeff Jarvis pointed at a column by Paul Krugman in Friday's New York Times on the subject. BuzzMachine... by Jeff Jarvis (scroll down a ways when you follow the link - the post is titled The Health-Care War). A tip of the hat to Jarvis - I've completely turned Krugman off due to his shrillness and blind partisanship, but I think this article is useful. I can't say that I agree with his prescription on how to fix the system but it's good to see the issue getting aired. Hopefully this will prompt some more discussion of the issue and possible solutions in the mainstream media.

The Krugman article can be found at the NYT site here. This link will rot so I'll copy in a few of the meaty bits below. Again, I think a single payer system modeled on Canada (read, greater government control of the health care system) is the wrong answer - but we need to have the debate. Also, see the comments on Jarvis' blog regarding his post to get more flavor for people's feelings on the issue.

Can IT stunt your growth?

InformationWeek > IT And Growth > Top Execs Say IT Can Inhibit Growth > August 26, 2004

Well, I don't remember mama telling me that Information Technology (IT) would stunt my growth. There were some other things, but not IT. But apparently that's what some C-level executives believe according to this new survey by Bain & Co. (think they'll use this to drive selling some consulting bidness? nah, I'm sure this is a public service on Bain's part).

According to the survey:

But 60% of C-level executives and other senior managers say that IT, at times, inhibits growth, and that attitude could limit IT spending, according to a study released this week by management consultants Bain & Co.

I'm sure that revelation doesn't come as a shock to anyone who's been around IT either as a vendor or a user. It can be very aggravating when you can't roll out some initiative as quickly as you'd like because it's going to take more time than you'd like and more time than you think it should to make the changes to your system or because you're in the middle of upgrading your release of SAP or because you have to expand network capacity first to handle the increased traffic or whatever.

But if the survey is as muddled as this article appears to be, it's not clear what the message really is.

Take this quote:

"Hopefully, the survey is a wake-up call for CIOs when 60% of business executives think IT choices have been obstacles to achieving growth," says David Shpilberg, Bain's global IT practice head.

Yep, that's what CIOs needed - a wake-up call. Jeez, CIOs already have a shorter life expectancy than my son's goldfish used to have.

A tasty new Carnival...

She Who Will Be Obeyed!: Recipe Carnival Archives

This is cool - The Carnival of the Recipes. This is the second - just scroll down to read the first. And I love the name of the blog - She Who Will Be Obeyed. Not only recipes, but visual aids! Yum.

(thanks to Glenn at Instapundit)

Information Force Multiplier

Jeff Nolan, one of my favorite venture capitalist bloggers, has an interesting piece on the internet and blogs as a CEO's information source multiplier. Jeff Nolan: Information Force Multiplier

I think Jeff is right about CEO's being able to use their employee's weblogs as a way to monitor the health of the organization. I suspect in high tech industries like software, this is already reality. I'd also be willing to wager a small bet that in a few years time the healthiest and the sickest companies will be those with the heaviest volume of employee blogging with all those mediocre places in the middle mostly silent. Jeff says he's gone away to think about this some more; we'll check back and see what he comes up with.

Out of the Closet

No, no, no. Not out of the closet in that sense. I just mean that I've decided that I don't need to blog anonymously any longer.

I realize this is a religious issue with some webloggers, that blogging anonymously is somehow wrong. I've never quite felt that strongly. But, now that I've decided on my course as I start the second stage of my professional life, I decided that the reasons I decided to blog anonymously no longer hold. So, the new dog now has a name. If you care (and there's no reason why you should) you can click on the About Me link to find out way more than you wanted to know.

Google's Impact on IPO Reform

I seem to be stuck this week on Google after pretty well being able to not post on it prior to the IPO. Yesterday's WSJ brought yet another column on Google, this one looking at Google's impact on IPO reform. Back to the Drawing Board on IPO Reform

I must admit that I had high hopes for the Google IPO in terms of raising the bar on reforming the IPO process. Having been through the process once myself as the CEO of a company that successfully went public, I know that I believe that it's a process that could stand some reform.

I thought that Google had the clout and the cachet to pull off a very visible Dutch auction IPO that would provide some validation of and momentum to the reform of the whole public offering process. Unfortunately, I don't think that has happened. I'm not sure that it is all Google's fault - there are very powerful institutional forces on Wall Street that like the IPO process just the way it was, thank you very much. And there are lots of dollars in fees and trading profits at stake if the IPO process changes in a big way - whether Dutch auction or some other significant clean-up/reformation of the process. But I also think Google shot themselves in the foot.

As the article says -

By now everyone must be thoroughly confused about whether Google's stock launch was a triumph or a dismal failure. That is, everyone who doesn't belong to the nine-tenths of humanity that doesn't give two yahoos. The fact that it's not ten-tenths is already evidence that Google didn't complete its public-spirited mission of reforming initial public offerings.

[snip]

Not that it's clear even now what exactly happened, but Google bowed to the reality that it wasn't going to get its stock to market without making it worth somebody's while. The company settled for a marked-down issue price of $85. Sure enough, this produced a picture-perfect "pop" of 18%, near the historical norm.

Wall Street hardly needs another IPO scandal, so having advertised a Dutch auction, let's hope Google actually conducted one. In theory, this 85 bucks was calculated as the price at which all the offered stock would be cleared off the underwriting banks' books. But we don't really know whether the price was simply dreamed up by the banks in traditional IPO fashion to make sure their friends went home happy.

We can reasonably deduce, however, that Google's late decision to reduce the number of shares from 25.7 million to 19.6 million came about because the larger number wouldn't clear except at a substantially lower price. Yet now arrives word that the banks will exercise what's known as a "greenshoe option," allowing them to buy an additional 2.9 million shares at the issue price of $85 -- which turns out to be a nice bennie for the banks (Google closed at $105 yesterday) and one more sign the company outsmarted itself.

On another score, however, Google's IPO unquestionably represents an improvement on Wall Street tradition. The apportionment of shares was designed to be mechanistic (or so Google assures us) and not ridden with cronyism, as traditional IPOs are. Founders Sergey Brin and Larry Page deserve a round of huzzahs (which we duly bestow).

Having just acknowledged the Google founders for something good, the article proceeds to point out some negative behaviors and actions by Google management that likely contributed to the perception (or reality?) that the Google IPO was not a total success.

One less gratifying lesson is that what's true after a company goes public is also true before: Investors take a hard look at management in judging a firm's value. The whole pith and moment of modern financial theory concerns the problem of trust between shareholders and management. Yet here was Google inviting investors to trust the company with $1.67 billion of their cash even as the company professed it had no need for cash and never bothered to explain how it would be deployed to produce a competitive return for shareholders.

More eyebrow-raising, Messrs. Brin and Page expressed little enthusiasm for having the Joe Public as a partner. They made it clear they were going along with an IPO mainly as a "liquidity event" so employees could cash out their stock options.

Worse still, they wrote this condescension into the company's bylaws, awarding themselves special voting rights that virtually guarantee that when their interests diverge from those of outside shareholders, outside shareholders will be the ones taking it on the chin. (Maybe that's why $135 was a nonstarter.)

I don't claim to know what factors were most impactful in determining the outcome of the Google IPO. Was it the market's interpretation of Google management's attitudes, intentions, and trustworthiness based on their behaviors and statements during the IPO process? Was it lingering unhealed burns from the bubble years tempering enthusiasm for a very profitable and interesting company? Was it the threat of greater competition from the likes of Microsoft bringing back memories of Netscape? Was it dramatically slower growth in the most recently reported quarter? Was it that Google tried to IPO in the face of a declining stock market, which is tough for anyone and totally beyond Google's control? Was it sinister and underhanded behavior by the Wall Street crowd to try to undercut the Dutch auction process?

As I've noted below, I believe that the dual-class equity structure and what it signaled to potential shareholders is a major part of the problem, but there's no doubt that some of these other factors were at play. I do think that it's a shame that we didn't get a clearer result in favor of a reformed IPO process.

Google Governance - the other side of the story

Well, one day after I tee off on Google's corporate governance along comes a column in the WSJ with "the other side of the story" (thank you, Paul Harvey). WSJ.com - Betting on Google's Future.

The article defends Google's dual-class equity structure as appropriate for Google, given Google's need to make expensive, high risk bets over the next few years in order to ensure its ability to continue to grow and survive against powerful competitors and in the face of changing technology. As the author (a professor from Harvard Business School) says:

Dual-class equity will help Google's executives place big, risky bets without fear of losing their jobs or falling prey to a hostile takeover.

The article points out that companies with dual-class structures have, on average, performed well on the stock market:

On average, however, firms with dual-class stock have earned higher long-term returns than single class peers. Research by Valentin Dimitrov and Prem Jain tracks all U.S. companies that switched from single to dual-class equity since 1979. Over the four years following restructuring, shareholder returns for these companies exceeded control group gains by 18%.

What explains these results? With single class stock, management may be less inclined to gamble. If management cannot sell investors on their strategy, they may choose to forfeit opportunities rather than make investments that would drive down their stock price. Furthermore, since top executives don't control enough votes to ensure a friendly board, they can be fired if a risky project fails. Better to choose a safe strategy that yields lower returns but avoids career-wrecking failure.

The cable TV industry is cited as an example of an industry where dual-class structures have been used effectively:

These dynamics have been evident in the cable TV industry. In the face of enormous technological and regulatory uncertainty, cable companies had to decide whether to expand or sell the firm. Compared to cable companies led by professional CEOs who held few shares, my research shows that firms led by owner-managers who employed dual-class stock were four times more likely to expand.

Dual-class stock helped the Roberts family create considerable value for long-term investors in Comcast. The same is true for Rupert Murdoch's News Corporation, John Malone's Liberty Media, and Sumner Redstone's Viacom. All these CEOs embraced risky strategies that were initially greeted with skepticism by investors but ultimately proved successful.

The article also concedes that dual-class arrangements have their problems:

With this concentration of voting power, it's clear why dual-class stock drives governance watchdogs crazy. They fear that entrenched management -- like Adelphia's -- will reap private benefits at shareholders' expense. This can take many forms, including excessive perquisites or siphoning profits to management-owned affiliates. As evidenced by Enron, Tyco, and WorldCom, such abuses may occur in firms that do not use dual-class stock. However, shareholders with inferior voting rights cede their last line of defense against incompetent or avaricious management: a change of control. Reflecting this sacrifice, shares with inferior voting rights historically have sold at a 4% discount, compared to counterparts with superior rights.

Well, now I feel good knowing that I have provided equal time to the defenders of dual-class stock structures and Google management. But I haven't changed my mind. I agree with the article at a conceptual level but in the reality where I live, I think that other things are going on at Google above and beyond those outlined in the article. I do agree wholeheartedly with the author's closing line:

An investment in Google is a long-term bet on its management. Are you feeling lucky?

Nope. I ain't feeling that lucky. I've been wrong before, but I'm comfortable sitting this one out.

Gartner Group interviews Clayton Christensen

I just came across this interview with Clayton Christensen out on the Gartner Group website. The Gartner Fellows: Clayton Christensen's Interview Part 1 It appears to be publicly available.

I think most everyone interested in high tech marketing and innovation knows that Dr. Christensen is the author of two of the best business books of the past ten years: The Innovator's Dilemma and The Innovator's Solution. This interview has some interesting discussion of a few of the concepts from his books, esp. The Innovator's Solution. I think the discussion of market segmentation that takes up the last one third or so of the interview is particularly useful as it expands on one of the core ideas in The Innovator's Solution - the concept that we don't set out to buy a particular product or service, we set out to hire someone (a product or service) to do jobs that we have to accomplish.

Christensen's concept of hiring a product to do a job is very nicely put and builds on prior work by people going back at least to Harvard professor Ted Leavitt whose work, including the classic Marketing Myopia, talked about how people don't want a drill, they want holes. In the interview Christensen talks a little about why it's so hard for companies to put the concept of hiring products for jobs into practice. He also discusses a couple of techniques that can help marketers and others adopt this perspective. Good insightful stuff wrapped around a couple of very actionable techniques.