Here a Fee, There a Fee, Everywhere a Fee, Fee

But (headline aside), sometimes a big enough outcry can get the fee to go away.

I'll admit it: I hate fees. I hate getting nickel-and-dimed for every last little thing. I hate 'em because they're sneaky, and I hate 'em because they're almost always deeply regressive.

So when I read about the outcry about Verizon Wireless's proposed $2 fee (30 December New York Times story by Ron Lieber and Brian X. Chen, here) , I was quite pleased -- even though the vitriol seemed a little excessive.

After all, as the article pointed out, the fee would only apply "to people who make a one-time credit or debit card payment of their monthly bill on the phone or online. Subscribers who write checks or have the company charge their credit or debit cards or deduct from their bank accounts each month will not have to pay the new fee."

Part of the outrage came from Verizon's stunningly-stupid naming of the charge as a... (drum roll, please) ... "convenience fee"! Part of the outrage came from the general lack of real news in the Christmas-to-New Year's week. Part of the outrage came from the sense of victory from getting Bank of America to roll back its $5 monthly fee to customers who used debit cards. But a huge part of the outrage undoubtedly comes from the you're-holding-me-hostage-with-a-two-year-contract feeling that cellphone customers feel.

This is especially true if you think about who is most likely to make a "one-time credit or debit card payment of their monthly bill on the phone or online."

Is it going to be someone who's got $50,000 in the checking account? Or is it more likely to be someone living paycheck to paycheck, and worried that if she writes the check today, that most recent paycheck won't have cleared and the Verizon check will bounce?

“They are punishing people who need to wait until the last second,” said David O’Neill, who recently lost his job at a Borders bookstore that closed. He is a former Verizon Wireless customer but took to Twitter anyway on Thursday to argue that the company’s move helps the 1 percent get richer, since it rewards Verizon shareholders.

Lieber and Chen quoted a market analyst who said that "it made sense that Verizon was charging for over-the-phone payments, because carriers typically must pay a third-party service to handle those transactions. But Internet payments do not require a third party, he said." But, hello, what is Verizon Wireless anyway? A phone and Internet provider, right? So if anyone can handle over-the-phone or over-the-Internet transactions, it ought to be Verizon.

I keep coming back to the feeling of being a hostage to a Verizon contract as the real motivator for the vitriol. Yes, I know: if you really hate the hostage feeling that much, you can always pay real money for your cellphone, instead of getting it "free" or at substantially reduced price in exchange for the contract. (Full disclosure: I'm one of those tied-by-the-contract Verizon Wireless customers.)

Remember what I said about hating fees for their essentially regressive character? This is another example of that. People who can afford to pay the full cost of a smartphone can avoid the fee; at the lower end of the economic scale, you probably don't have a choice. Perhaps you're a recent college graduate, trying to pay off student loans, minimally furnish your first real apartment, and eat regularly, all while proving to your boss that you're really committed to this job that -- itself amazing enough -- you managed to land in a horrible job market, and so you need to be reachable at all times. You need that new phone. And you definitely can't afford to pay $300 up front for it.

All that said, Verizon did a terrible job of introducing the fee. It didn't make it immediately clear who would, and who wouldn't, be affected. It didn't explain why a fee was necessary in the first place. Even members of Verizon's own "consumer advisory panel" weren't informed of the fee ahead of time.

I'm delighted that it took Verizon only a day to recant their fee. But the Internet and Twitter outrage may have only been part of the reason for that decision. Today's New York Times reports, in an article by Ron Lieber, that "the Federal Communications Commission put out word earlier Friday that it thought the company’s actions merited closer scrutiny."

I hate fees; I love sharp-eyed regulators.

How "Fair" is "Fair Trade"?

What product is produced with the most forced or child labor in the world? If you said, "Gold"; you're right.

Number two? Cotton.

Because I believe that ethical business isn't just the responsibility of producers, but also of consumers, I look for the "fair trade" label on products I buy. Even if it makes that purchase a little more expensive, I'm happy to do that -- and to know that I'm blessed to be able to make that slightly more expensive purchase.

Fairtrade International, one of the groups that certifies products as "fair trade", points out that cotton prices worldwide have been in steady decline for several decades, falling this year to $0.92 per kilo, the lowest level in 30 years. Of how many other products can you say that? Significant government subsidies for cotton production in countries like the U.S. put extra downward pressure on the price (according to Fairtrade, US cotton producers receive $4.2 billion in government subsidies annually, which is equivalent to the value of their entire crop. Well over half of US cotton production is "dumped" on the world market, often priced below the costs of production, even though cotton production in Benin is less than half the cost in the US. Does anyone else have ethical problems with this?!?).

Cam Simpson at Bloomberg News reported Thursday on the exploitation of children in the production of organic and fair-trade cotton in Burkina Faso. The most depressing statement of all?

In Burkina Faso, where child labor is endemic to the production of its chief crop export, paying lucrative premiums for organic and fair-trade cotton has -- perversely -- created fresh incentives for exploitation. The program has attracted subsistence farmers who say they don’t have the resources to grow fair-trade cotton without forcing other people’s children into their fields -- violating a key principle of the movement.

Bloomberg's Simpson followed one young girl, 13-year-old Clarisse Kambire, who has been working in cotton fields for two years, digging rows by hand, and then harvesting the same way. Devastating photos and videos are available here.

Fairtrade International is reportedly starting a review of Burkina Faso policies, following the publication of the Bloomberg News article.

Until then, what's a responsible consumer to do? Unfortunately, there's no easy answer -- there's no way I can trace all the cotton in my favorite turtleneck back to its source to know whether children in West Africa planted and picked that cotton, or whether children in Sri Lanka or India spun the yarn, or operated the sewing machines in Indonesia that made the shirt.

That doesn't cut me loose from the responsibility of trying to find out, of pressuring the store from which I buy to provide that information, and to abide by the agreements that they sign.

A spokesperson for Victoria's Secret, the Columbus, OH-based lingerie company which purchased some cotton from Burkina Faso, told Bloomberg News, "Our standards specifically prohibit child labor. We are vigorously engaging with stakeholders to fully investigate this matter."

Those words are nice -- and important -- but the follow-up will be critical.

I will be keeping that in mind this week, as I rush around trying to find those perfect last-minute holiday gifts.

What's the Cost of Doing Business? What Should It Be?

A couple of stories in today's New York Times got me thinking about the "cost of doing business".

That's a phrase that gets tossed around a lot. Inventory "shrinkage" (a.k.a. theft, by shoplifters or employees) is often shrugged off as a "cost of doing business", whether the company is a mom-and-pop gift shop or a major retailer like Macy's.

A week ago, a federal judge blocked a proposed $285 million settlement between the SEC and Citigroup, terming the amount "pocket change" and noting that such a settlement was often viewed on Wall Street as a "cost of doing business" (click here for Edward Wyatt's 28 November New York Times article).

Now Bank of America's Merrill Lynch unit has come to an agreement to pay $315 million to settle claims that they misled investors about mortgage-backed securities (click here for the Times article, from the Associated Press). This is only the most recent claim settlement for BoA; the AP reported that "in the first half of the year alone, the bank put up $12.7 billion to settle similar claims from different groups of investors." Only potential roadblock here? The settlement must be approved by the same federal judge, Jed S. Rakoff, who struck down the Citigroup deal last week.

Also in today's paper, Sabrina Tavernise and Clifford Krauss reported that Alpha Natural Resources, now owners of Massey Energy, agreed to pay $209 million in civil and criminal penalties and restitution for charges stemming from the Upper Big Branch mine disaster last year that resulted in the death of 29 men. While some of the money (approximately $46.5 million) is earmarked for the families of the men who died, Alpha executives are protected from prosecution by the deal. Massey Energy executives, however, are not.

The problem is, "Under the federal mine act, safety violations, with the exception of falsifying records, are categorized as misdemeanors. That limitation could make it hard to build a case against senior [Massey] managers..."

I've written before about the inadequacy of mine safety protection; this is just further proof that some people view losing lives as merely "a cost of doing business".

Meanwhile, over at Olympus (previous blog posts on that debacle here, here, and here), it becomes clearer that "Olympus had persuaded several banks, including Société Générale of France, to submit incomplete financial statements to auditors, apparently in an effort to conceal financial maneuvers that the report says involved at least $1.7 billion and were meant to hide failed investments during the 1990s." (Full story by Hiroko Tabuchi and Keith Bradsher, here) While an independent report called Olympus management "rotten to the core", it found no evidence of organized crime involvment -- which could have led the stock to be delisted by the Tokyo Stock Exchange. So again ... just a "cost of doing business"?

Yes, accidents happen in every industry, and prudent corporate managers should build allowances for disasters and settlements into their budgets. But that's doesn't mean that people's lives should be destroyed -- financially or actually -- and that the only reaction is, "That's the cost of doing business."

I'm listening for the outpouring of outrage. Why aren't I hearing it?

Want to Make Your Employees Feel Truly Valued? Don't Do This.

Zynga, the maker of great time-wasters like FarmVille, is obviously brilliant when it comes to motivating customers. Motivating employees? Not so much.

The Wall Street Journal's Justin Scheck and Sayndi Raice yesterday broke a story on an unusual move for a self-described "meritocracy"(note: subscription required for full article). While details and public statements have been few, thanks to the pre-IPO "quiet period", the basic issue is this: As CEO Mark Pincus was preparing for Zynga's public offering, he decided that too many shares had been handed out to too many employees, and asked at least some employees to give at least some of those (unvested) shares back. Or risk being fired (fired workers lose all rights to unvested stock).

Zynga now has about 3,000 employees. The heart of the controversy apparently lies with some early employees who were handed large numbers of shares (rather than paying large salaries, a common move with start-ups), but who are now deemed to have contributed less than later hires (who received fewer shares).

While it's not clear that Zynga has done anything illegal, I would argue with Mr. Pincus' statement of pride in the "ethical and fair way that we've built this company" (entire statement can be found here in a New York Times DealBook piece by Evelyn Rusli).

If I were trying to develop a system to set my employees against each other -- and drive down productivity while everyone sniped at everyone else -- I don't think I could have come up with a better system than this one. As Business Insider's Tom Johansmeyer put it, Mr. Pincus is essentially saying to his employees: "You don't deserve to be rich." (full BI article here)

I don't think this is going to help Zynga's future employee recruiting, either....

Olympus Continues its Fall

The Olympus debacle, as I noted last month (see original posts here and here), seemed at first like an interesting culture clash between its former chief executive (a Briton with 30 years' experience with Olympus) and a nearly 100-year-old Japanese company.

Now it's starting to look like "one of the biggest accounting fraud cases in corporate history," according to a Hiroko Tabuchi article in today's New York Times.

The evolving story had centered on one particular acquisition -- of British medical equipment manufacturer Gyrus in 2008 -- and specifically on shockingly high fees ($687 million on a $1.9 billion deal) that were paid to two heretofore-obscure Japanese bankers for "advising" Olympus on the deal. Olympus denied that anything improper had been done.

In a stunning reversal, the company yesterday admitted that "money for mergers had in fact been used to mask heavy losses on investments racked up since about 1990." (emphasis added)

Olympus' current chairman, Shuichi Takayama, acknowledged "inappropriate dealings" but would not admit to outright fraud.

Just How Trustworthy is that Trustworthy Guy in the Corner Office?

You know how, when someone is arrested for a truly heinous crime, there's always a neighbor interviewed who says something along the lines of, "But he was always so nice. Just a nice, quiet, ordinary guy."

A nice, quiet, ordinary guy with thirty-two bodies in the basement.

And then, bit by bit, the background stories emerge: the torturing of animals as a small child, the sociopathic behavior as an adolescent, the inability to control rage.

With heinous corporate crimes, it's the same. Enron gets extolled as a model ... until it isn't. Madoff's investment advice is utterly brilliant ... until it isn't. The headlines are shocking, but in the weeks and months that follow, more information comes out and the surprise ends up being that the shenanigans went on as long as they did. (Many people, for example, had tried to bring Madoff to the SEC's attention?)

Two days ago, I wrote a post about the fall of MF Global. As I noted then, it had seemed at first like a simple too-many-big-bets-that-turned-out-badly failure. And then the little matter of $600 million plus in missing customer funds turned up.

And today's New York Times carries a DealBook article by Susanne Craig, Ben Protess, and Michael J. De La Merced, that claims that while the firm fell apart astonishingly fast, "the collapse came after regulators raised warning flags for more than four months." Not exactly an overnight disaster. Jon Corzine, former Goldman partner, former US Senator from New Jersey, former Governor of New Jersey, had been chairman and chief executive officer of MF Global for less than two years.

The Times reporters note drily that "even when the watchdogs sound the alarm, it is not necessarily enough to save a firm." Regulatory agencies and the FBI are now looking into the matter, although no charges have been filed. So far.

And the authors also note that the resistance to regulators' insistence that the firm should raise more capital and provide more information about some risky transactions shows that "three years after the financial crisis, Wall Street executives are still fighting regulators' demands."

Over the course of the next several months, I expect to read reports of new banking bonuses, all in the name of "we have to keep the very best people." Me, I think these guys may be some of the very worst with whom to trust our hardly-earned cash.

Is the Goldman Halo Slipping? (Please Tell Me It Is)

"But -- he was at Goldman."

For a long time now there's been a halo around Goldman Sachs, despite the occasional outrageous mis-step (Remember banking as "God's work"? Read my 2009 post about that here). But spend a few years at Goldman, better yet make partner at Goldman, and you could pretty much write your ticket. Those Goldman guys: they had the Midas touch.

Well, for those of you who don't remember your Greek mythology, the whole "turning everything you touch into gold" thing was one of those sneaky "be careful what you wish for" ways that the Greek gods would play "Gotcha" with mere mortals. It's great to be able to turn a piece of wood into a block of gold -- hey, running a kingdom costs money! -- but not so much fun when the juicy steak you were looking forward to eating turns into something that will break a tooth.

Oh and when you're thinking about how smart those Goldman guys are ... Would you please also remember that we taxpayers had to bail 'em out? (Yes, they did repay that TARP money, but still....)

When I first read that MF Global was filing for bankruptcy (New York Times DealBook article by Azam Ahmed, here), it didn't seem so startling. Unfortunate, perhaps, but not startling. Jon Corzine, MF Global's chairman and chief executive officer (and former New Jersey governor, and former US Senator from New Jersey, and, oh yes, former Goldman partner), had bet heavily on European debt -- that Europe would come to the rescue of its smaller, more troubled economies. While he may yet prove right in the long run, he'd bet that way for the short term, and after trying frantically to find a buyer for MF Global over the weekend, the firm filed for bankruptcy protection on Monday.

Times financial columnist Joe Nocera was not feeling particularly forgiving about the MF Global debacle this morning, however. Of Mr. Corzine, he wrote, "you would think that as a former Wall Street titan, he would have noticed that taking giant bets on shaky, long-term bonds while financing your operations with overnight loans that can be pulled at any second is not exactly a recipe for success."

But it's not just the relative stupidity of the strategy that made Mr. Nocera angry. It's the (as he put it) "heads-I-win-tails-you-lose" mentality. If Mr. Corzine had been able to find a buyer for the firm last weekend, Mr. Nocera noted, he would have been in a position to walk away from a company that he had effectively destroyed (stock price less than two years ago when Mr. Corzine took over: $7; stock price before bankruptcy filing: about $1.20), with a "severance package" of $12.1 million.

Now that I think about it, Mr. Nocera, I'm angry too.

Adding insult to the injury: Mr. Corzine apparently came thisclose to selling the firm to Interactive Brokers, when it was revealed that "hundreds of millions of dollars" were "missing" from MF Global customer accounts. According to another Times DealBook article by Ben Protess, Michael J. De La Merced, and Susanne Craig, the sum was originally estimated at $950 million, but is now thought to be "less than $700 million".

As the reporters noted, this might be simply a matter of "sloppy internal controls". But:

In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.

At this time, neither the firm nor Mr. Corzine have been accused of any wrongdoing.

But really -- was 2008 that long ago? With the "loss" of something more than $600 million (per this afternoon's DealBook article by Messrs. Protess and De La Merced), you're talking gross mismanagement, or theft, or both. There really aren't any other possible explanations.

As one Times reader commented: "Sure, you can leave a ten spot in your pants pocket and bring your pants to the cleaners, but $600 million?"