Tuesday, August 19, 2014

Write Well and Keep Our Advertisers Happy


Imagine, for a moment, that you are the chief executive of a major magazine publishing company. These are tough days in the print publications world -- more and more readers are getting their news and entertainment online, where it's updated faster and provided more cheaply (often, for free). So if you have any hopes of staying profitable (or returning to profitability), you have to find ways to boost revenue or cut costs.

An obvious starting point for boosting revenue is making your advertisers happier.

An obvious starting point for cost-cutting these days is trimming staff.

But publishing relies on, among other things, writers. How many people will pay money for a magazine that's all ads? I don't always throw out the catalogues that clog my mailbox, but I certainly wouldn't pay money for them. (Yes, I'm familiar with Lucky, which straddles the line between magazine and catalogue.)

So you have decided that you need to cut your writing staff. But who to cut? How will you determine which writers to keep and which to jettison? What criteria will you use to judge them? Quality of writing, for sure (especially since you've already gotten rid of most of the copy editors who could improve anyone's material). Their productivity, no doubt. What else?

In this day of social media, their ability to produce Twitter-teasing snippets and YouTube-ready video is probably important too.

But what about this: Advertiser-friendliness?

That's the direction in which Time Inc. has moved, and Henry Luce is doing wheelies in his grave. Time Inc., with its stable of famous publications (TIME itself, plus Sports Illustrated, People, Entertainment Weekly, Fortune, etc.), was spun off from Time Warner in June (Wall Street Journal article from March 2014 on the spin-off, by Keach Hagey and Martin Peers, here). Layoffs have already occurred, and more are expected.

Gawker Media reported yesterday (here; by Hamilton Nolan; a similar story, by Ravi Somaiya appears in today's New York Times, here) that Sports Illustrated writers were being evaluated on the following criteria:
  1. Quality of writing
  2. Impact of stories / Newsworthiness
  3. Productivity / Tenacity
  4. Audience / Traffic
  5. Video
  6. Social [media]
  7. Produces content that [is] beneficial to advertiser relationships

So much for the "Great Wall" between editorial and publishing.  

The information was provided to Gawker by the Newspaper Guild, which represents some Time Inc. employees; the guild was provided with the information by Time Inc. itself. A union representative told Gawker:
Time Inc. actually laid off Sports Illustrated writers based on the criteria listed on that chart. Writers who may have high assessments for their writing ability, which is their job, were in fact terminated based on the fact the company believed their stories did not 'produce content that is beneficial to advertiser relationships.

An arbitration demand has been filed, "disputing the use of that and other criteria in the layoff decision-making process."
 

You may be thinking, "So what?" But how much editorial writing (by which I mean both news articles and opinion pieces) will you trust if you know that the writers are being judged by their advertising-friendliness? Is that highly positive piece on a new technology in "Big Business Magazine" for real? Should you invest? Or it it written that way because the new technology comes from a company that's advertising heavily in "Big Business"?

Back at the dawn of time, I was a newspaper reporter. And though many readers are cynical about journalists' "objectivity" (and post-modernists argue, with considerable justification, that objectivity is an illusion), I can tell you that we took it very seriously. We did our damnedest to tell the story as we saw it, and be damned to whether the person we were writing about was a close personal friend of the publisher or not.

Welcome to 21st-century journalism.

A Sports Illustrated spokesperson is quoted in both Gawker and the Times complaining that the report is "misleading and takes one category out of context", and that "SI's editorial content is uncompromised and speaks for itself."

It may be speaking, but what exactly is it saying?

Wednesday, August 13, 2014

Who Lives? Who Dies? You Decide.

Medical history is rife with the stories of unethical research (e.g., Tuskegee syphilis experiments; Centers for  Disease Control comments here), and African history is rife with stories of the horrific exploitation of native populations by colonizing countries (Wikipedia article on Africa colonization, here).

Put the two together, and you have the potential for a highly toxic brew.

So what would you do, in the face of the current outbreak of Ebola hemorrhagic fever in West Africa? There is an experimental drug, available in tiny quantities. It is just finishing up animal testings, and is due to start in soon on clinical trials. It shows promise, but its actual effectiveness is unknown. Should it be distributed to current Ebola sufferers? And if so, to whom should it be given?

Do you give to front-line African medical workers, as the ones who have put themselves at the greatest risk, but who may already be too sick to benefit, or whose medical care may not be "up to" Western standards? Or do you give to Western aid workers, who have been airlifted home, and can be treated in high-isolation sterile wards?

If you give it to the Africans, and they die, is this just another example of using non-whites as guinea pigs for First-World medicine?

If you give it to the Westerners, and they survive, is this just another example of valuing Westerners' lives more highly?

The question is now more-or-less moot, as there are virtually no supplies of the experimental drug, ZMapp, left (click here for CDC's explanation of Ebola, and here for CDC's Q-and-A on ZMapp). At most, there are a few hundred doses remaining; to date. more than 1,800 cases have been reported and more than 1,000 people have died.

The questions are discussed at length in two Andrew Pollack articles for The New York Times (August 8 piece, here; August 12 piece, here). Pollack's most recent article reported that
On Tuesday, the World Health Organization endorsed the use of untested drugs to combat the outbreak, which has already killed more than 1,000 people and continues to spread. But ZMapp and other potential treatments are in such short supply that another politically charged question remains: Who should get them?

Marie-Paule Kieny, assistant director general of the World Health Organization, said at a news conference in Geneva on Tuesday that several drugs and vaccines had shown some promise in animal testing and might conceivably be used.

But none are “available in unlimited supplies right now,” Dr. Kieny said. “I don’t think that there could be any fair distribution of something which is available in such a small quantity.”
So -- who would you choose?

And let's make the discussion a little tougher. The Times' Donald G. MacNeil Jr. reported today (full article, here) that
The Ebola outbreak in West Africa is so out of control that governments there have revived a disease-fighting tactic not used in nearly a century: the “cordon sanitaire,” in which a line is drawn around the infected area and no one is allowed out.
Troops in Sierra Leone and Liberia are closing off roads in infected areas, not allowing people in or out. So... do you just let the people inside that "cordon" fend for themselves, and die or not? Do you provide the limited medication you have to the ones living in the area with the highest levels of disease? MacNeil reports:
“It might work,” said Dr. Martin S. Cetron, the disease center’s chief quarantine expert. “But it has a lot of potential to go poorly if it’s not done with an ethical approach. Just letting the disease burn out and considering that the price of controlling it — we don’t live in that era anymore. And as soon as cases are under control, one should dial back the restrictions.”

Experts said that any cordon must let food, water and medical care reach those inside, and that the trust of inhabitants must be won through communication with their leaders.
 How ethically will panicked people behave? And how much trust in Western medicine and aid do you think exists in West Africa today? 



Monday, August 11, 2014

If You're Planning on Bringing Out the Big Guns...


...Please make sure they're aimed correctly.

Over the weekend, I read the full-page ad that "Authors United" ran in the New York Times opposing Amazon's actions against publishing house Hachette. The ad, signed by hundreds of authors (most not published by Hachette), argued succinctly that "None of us, neither readers nor authors, benefit when books are taken hostage."

Amazon has de-listed many Hachette-published books over the price of e-books, and is now reportedly in a dispute with Disney, preventing Amazon customers from pre-ordering unreleased material (books or movies whose publishing / release date has been announced, but has not yet occurred).

Amazon had earlier posted its own "Readers United" manifesto, accusing Hachette of over-pricing ("Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market — e-books cannot be resold as used books. E-books can and should be less expensive."). It has also accused Hachette of collusion with other publishers in setting those prices, and quoting George Orwell.

Now, those of us who love books and words love Orwell. This is, after all, the man who skewered the mis-use of language with the "Newspeak" of 1984, and the three great slogans of "the Party":
  • War is Peace
  • Freedom is Slavery
  • Ignorance is Strength

According to Amazon, its e-book platform would have been seen as a threat to traditional publishing by Orwell, just as the introduction of inexpensive paperback books was:
The famous author George Orwell came out publicly and said about the new paperback format, if "publishers had any sense, they would combine against them and suppress them." Yes, George Orwell was suggesting collusion. 

The Internet exploded in response, because the actual quote is:
The Penguin Books are splendid value for sixpence, so splendid that if the other publishers had any sense they would combine against them and suppress them.

A slightly different spin, wouldn't you say?

In fact, as noted by David Streitfeld in today's New York Times, Orwell went on from there (full article, here):
Orwell then went on to undermine Amazon’s argument for cheap e-books. “It is, of course, a great mistake to imagine that cheap books are good for the book trade,” he wrote, saying that the opposite was true.

“The cheaper books become,” he wrote, “the less money is spent on books.”
Instead of buying two expensive books, he said, the consumer will buy three cheap books and then use the rest of the money to go to the movies. “This is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author and the bookseller, it is a disaster,” Orwell wrote.
 Hachette has issued its own salve (Sarah Gray article in Salon, here), in which CEO Michael Pietsch responds directly to the Amazon complaints, noting that (among other things),
We know by experience that there is not one appropriate price for all ebooks, and that all ebooks do not belong in the same $9.99 box. Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.
Amazon is under increasing pressure from Wall Street to produce profits, not just revenues. And while there are plenty of happy Amazon customers who will decry the evil profiteer publishers, I side with the publishers and Authors United on this one (this despite being -- full disclosure -- a generally satisfied Amazon Prime subscriber). I don't want prices to go so low that authors can't make a living. Because then they'll stop writing. And that won't be good for publishers like Hachette, for Internet bookstores like Amazon, or for readers like me. 

Wednesday, August 6, 2014

The Only Reason I'm Not Boycotting Market Basket Is...

... There isn't one in my neighborhood.

But as a native Bay Stater, I've been following the extraordinary story of grocery workers rallying for an ousted CEO (A good summary of the current situation, in yesterday's New York Times, is here; article by Katharine Q. Seelye and Michael J. de la Merced; the actions were also covered by WBUR's On Point radio program today, here).

I drove by the Gloucester MA Market Basket store over the weekend and found that while the nearby rotary had several employees holding up "Honk if you love Artie T." signs, the store's parking lot, designed for hundreds of cars, held fewer than ten.

The Market Basket story has elements of a soap opera (or a Russian novel), with feuding cousins threatening the structure of an entire business on which thousands depend. The chain was founded about a century ago by Greek immigrants, and has grown to 71 stores in Maine, New Hampshire, and Massachusetts. Control has passed to grandchildren, two of whom (Arthur _T._ Demoulas and Arthur _S._ Demoulas) have been fighting for control. Arthur T., who had been president, was forced out in June, and Arthur S. took over, bringing in two "co-chief executives", and apparently exploring options for the sale of the chain.

Market Basket workers made their feelings about "Artie T." clear, and were joined by Market Basket customers, who honored the workers' requests to boycott the store. While many line cashiers and stockers are still showing up for work, they have less and less to do, as few customers are buying, and shelves are empty, as Market Basket warehouse employees are refusing to deliver goods to the stores. The chain is said to be losing millions in sales each week.

Joined by store managers and mid-level executives (several of whom were fired after organizing the first protests), the action is unlike any other workplace disruption seen -- the 99%, if you like, protesting for a member of the 1%.

Boston's WBUR (full article, here) interviewed an assistant produce manager who was protesting: Why was he there? His reply was:
I have concerns, but at the same time I will take the risk because this company has provided me with everything I’ve needed for the last 11 years. Artie T. has made the company what it is. He’s genuinely interested in the associates as well as the customers.
 What's going on here? Just a summertime tizzy? I don't think so. As an opinion piece in the Lowell (MA) Sun noted (here), customers are standing with the protesters, it wasn't just about the "fair prices" for which Market Basket was known:
Market Basket was and is a real place. A place where an actual human being rings up your groceries instead of those stupid, soulless, self-scan aisles. A place where the kid from your neighborhood shows you where an item is. A place where the store manager says hi to you by name and blurts out the weekly specials over the intercom: "Attention, Mah-ket Basket shoppahs." 

And the attention that the workplace action is getting is only increasing. The Sun writer added: 
This is about something much bigger than Market Basket employees or customers now. This is about the middle class having a chance. This is about America.

As many of you know, I argue regularly against "shareholder value" as the be-all and end-all of capitalism. I've written about it often (e.g. here, and, most recently, here). Positive results for shareholders aren't just about this quarter's share price. They're about the long-term. And for that you need well-paid and -trained employees, and loyal customers. Which Market Basket had, in spades. It's a shame the board of directors didn't realize the value of what they had.  



Wednesday, July 30, 2014

Worried About That Used Car You're Thinking of Buying? Go to New York City.

Why regulate? I'll say it again: Because if you don't, too many people won't do the right thing.

I wish that weren't true. But it is, and we all know it. Oh, and we know all the "good" reasons why, too. (Free example: "Gee, I really want to do the right thing, but my competitor, across the street? He's a horrible person, and I know he won't do the right thing, which would cost a little more, so he'd be able to charge less, and I'd go out of business. But really: I'd like to be able to do the right thing. Honestly.")

I wrote a month ago (here) about my disappointment that CarMax's "rigorous inspection" of the used cars it offered for sale did not include having vehicles under recall repaired before sale. It turns out -- which I didn't know, and I suspect most other consumers don't either -- that while a new-car dealer must repair a recalled vehicle before it can be sold, used-car dealers aren't required to do that.

The National Highway Traffic Safety Administration (NHTSA) has been asking Congress for such a law, but proposals have been languishing in both House and Senate (what a surprise!).

In a May New York Times article, the NHTSA director said, "It should be a slam dunk...To me it is hard to oppose ensuring that people who buy a car, whether it is new or used, or whether you are renting a vehicle, can have the confidence that it is safe." (Full article, here)

New York City is now taking matters into its own hands. According to Rachel Abrams and Christopher Jensen, in today's New York Times (full article, here), 
New York [City]’s requirement is a stricter interpretation of a state law that requires all vehicles to be safe and roadworthy in order to be sold. Now, city officials want to make it clear to dealers that being safe includes repairing cars under recall....

Companies found to have sold unrepaired used cars will be required to notify the vehicles’ owners about the defect and make any necessary repairs. The department is prepared to issue violations to offending companies and, if necessary, revoke their licenses to operate.

While some dealerships already have policies in place requiring the repair of vehicles under recall, others are complaining about the additional burden this regulation will place upon them:  "When do we stop babysitting the consumer?" asked one used-car dealer.

He clearly has a different definition of "babysitting" than do I.

The question is, How many people will have to be injured or die before Congress takes action?


Friday, July 18, 2014

How Is Inversion Different From Evasion?

If you're talking taxes, the answer's easy: Inversion is legal, evasion is not.

But if you're talking the morality of tax-avoidance... well, I think it gets a lot murkier.

If you've read this blog even casually, you know that one of my favorite quotes is from the great American jurist, Oliver Wendell Holmes: "Taxes are the price we pay for a civilized society." (Last used, I think, here when I was also talking about sleazy tax-avoidance schemes)

And if you've been following the business news lately, you've seen a lot of talk about inversion deals. (If you, like me, are not a tax accountant / lawyer, the short definition is: Moving out of the US and establishing your corporate "headquarters" in a country with a lower corporate tax rate than ours.)

And the more I've been reading about these deals, the madder I've gotten. Clearly, if the Supreme Court is right, and Corporations Are Persons, then way too many of them are sociopaths.

The current poster child for inversion is Minnesota-based Medtronic and its acquisition of Massachusetts-based-but-Ireland-headquartered Covidien (14 June 2014 New York Times article detailing the deal, here). But it's hardly the only such company making this move. Today's Times, for example, carries a David Gelles article (here) about the anticipated acquisition of Ireland-based pharmaceutical giant Shire by Chicago-based even-bigger pharmaceutical giant AbbVie.

Lawmakers may be starting to pay attention. Treasury Secretary Jacob Lew sent a letter to Congress Tuesday (as reported in today's New York Times by David Gelles, here), urging it "to take immediate action to halt the rush of companies abroad." Lew and some lawmakers are concerned about the significant reduction in tax receipts; I'm outraged by the immorality.  Especially as many of the pharma companies that are moving abroad receive substantial payments from the federal government through Medicare and Medicaid.

Thankfully, I'm not alone in my outrage.

Fortune senior editor at large Allan Sloan has written an excellent, blistering cover story (here; long but absolutely worth reading; if you're an audio person, Sloan gave a great interview to WNYC's Leonard Lopate yesterday, available here) on the fiscal and philosophical damage that mass inversion can / will cause. Sloan fairly presents the argument for moving "headquarters" abroad:
The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

But, Sloan argues, if your taxes are too high, you shouldn't desert the US: You should stay and fight for tax reform. Moreover:
I define “fiduciary duty” as the obligation to produce the best long-term results for shareholders, not “get the stock price up today.” Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America.

Yes. I have written before that "shareholder value" is too often used to justify really questionable behavior (example: here).

The simple solution, many are saying, is to cut the US corporate tax rate. But would that work? Sloan believes (and I agree), that it wouldn't:
In the widely hailed 1986 tax reform act, Congress cut the corporate rate to 34% (now 35%) from 46%, and closed some loopholes. Corporate America was happy–for awhile. Now, with Ireland at 12.5% and Britain at 20% (or less, if you make a deal), 35% is intolerable. Let’s say we cut the rate to 25%, the wished-for number I hear bandied about. Other countries are lower, and could go lower still in order to lure our companies. Is Corporate America willing to pay any corporate rate above zero? I wonder.

Great: So we're back to playing a how-low-can-you-go game, and to hell with the rest of us. I don't know about you, but I'm stuck here -- and patriotically glad of it -- and paying my taxes. And may I point out that, while the "sticker rate" is 35%, it's not the actual rate that most companies pay (2013 CNN Money piece, here; according to the GAO, the effective tax rate in 2010 was ....12.6%).

As I said, Sociopaths. 


Wednesday, July 16, 2014

Hate Those Regulations And Unions? Look In The Mirror, And You'll See Why They Exist

Senior managers seem to take great pleasure in excoriating the twin evils of government regulation and labor unions. Without those, they say, think how much more efficient our marketplaces would be! Think how much more profitable our company would be!

It's my opinion that government regulations and labor unions are in fact statements about how badly many companies are run. I can't think of many governments that begin with massive regulation of corporations -- regulation comes about because of horrific instances of environmental pollution, workplace safety lapses, or other abuses. Labor unions have trouble getting into companies where workers feel valued and well-paid. If your employees are starting to mutter about unionizing, the problem's not with them: it's with you.

I wrote a few months ago (full post, here) about the tiniest hints that companies are learning that hiring more employees and paying them better results in happier customers, bigger sales, and even higher profits. Today's New York Times has two article that relate to this discussion.

In the first (full story, here), Steven Greenhouse writes about the growing pushback against "on-call" schedules that give workers little or no control over their working hours. In many cases, workers learn only a day or two in advance -- occasionally on the day itself -- whether they will be working or not. That gives them little time to arrange for child care, for example, or to work a second job to improve their financial situation.

A retail organization representative is quoted opposing proposed regulations that would require employers to pay workers extra if they are given less than 24 hours' notice, or to grant flexibility for care-giving or school-conflict requests: "Where employers and employees now work together to solve scheduling problems, you’ll have a very bureaucratic environment where rigid rules would be introduced."

Expect that, as I hear it from retail employees, employers and employees don't "work together". Unless you define "working together" way differently from the way I do.

A University of Chicago professor notes, "Frontline managers face pressure to keep costs down, but they really don’t have much control over wages or benefits...What they have control over is employee hours."

And employees have no power to resist.

That situation won't change until retailers stop thinking of their store employees purely as a cost. I know I'm not the only shopper who has left a store in annoyance, and without spending the money that I had intended to spend, because I couldn't find anyone on the floor to help me.

In the second story (here), Eduardo Porter compares the commitment that many early- to mid-20th century employers had to their employees to what passes for commitment today. He recalls Eastman Kodak's early profit-sharing plan, Ford's revolutionary (for the time) $5 a day salary for its workers, and other well-known examples. Meanwhile, today, too many companies still worship at the altar of Milton Friedman and "shareholder value".
Companies, of course, are not charities. Their main responsibility is to remain profitable.

Still, there is a case to be made that attending to workers’ rights or environmental degradation might help the business in the long term...

More broadly, company executives are under a new form of pressure. George Serafeim of Harvard Business School points out that the information age has brought greater transparency to corporate operations. Customers, investors and employees know more about what businesses do around the world and can exert influence to change their behavior.
Of course, while corporations may clean up what's visible to the outside world, that's no guarantee that the same will occur on the inside. Which is why I support whistle-blower protections, too.