The Wall Street Journal today had an interesting article on the new regulation called FIN 48 that requires companies to disclose how much they set aside as reserves in case the transactions that have gotten the companies tax relief don’t pass muster.
Would it not logically then follow that the higher the amount any company reports as reserves, the higher the company might be at risk of transactions not passing the audit? I of course, mean this on a relative comparison level. And, then would this mean the more the amount of reserves, the higher the chances that the IRS or any other regulatory agency will be scrutinizing those companies and those transactions?
And, then the other question is, does the size of this reserve also able to quantify the relative risk the company has taken on. Are we incentivising the companies to have smaller reserves so as to not attract the attention of IRS? Or, are we preventing the companies from thinking creatively but within legal bounds of course?
Friday, May 25, 2007
Jumpstarting Economies
The other day the CEO of OPIC came to our school to speak about OPIC’s mission and how it makes a difference around the world. One thought struck me as important. He mentioned that housing is the single most important driver of economic growth in a region. The logic that follows is that once you can afford a house, there are primary and secondary mortgage markets that help in other entrepreneurial activities. I thought housing isn’t only important as a basic unit that spurs economic activity. It is also the single most important material possession that most human beings hope to have in a life time. It leads to peace of mind, psychological stability, incremental happiness, and the confidence to go out there and do something. Just for that, everyone should have a home. It will definitely make for a better society.
Branding TouchPoints
I was at Safeway the other day shopping for my weekly supply of a graduate student’s food (apples, milk and bread). I also went looking for a lotion there. I saw Johnson’s Baby lotion and Aveeno’s new line of baby lotions. There is something to be said abt. an MBA education - It lets you connect the dots. Back to the lotions – Aveeno promised softer skin, which my hands desperately were in need of, thanks to the Arizona sun. Trust me, there is a point to all this. The Aveeno lotion package looked attractive from a distance but when I picked it up, it was harsh to the touch – like a sandpaper. That’s where my mind (now armed with an MBA) started thinking about branding touchpoints. Seems like the company in this case missed the literal touch point – mine. Needless to say, I didn’t buy Aveeno. I plan to write to the company.
What's in a name?
A while ago, I was researching economic data on the 49 poorest countries on the globe. Why 49, you ask. Apparently, my professor thinks it’s the magic number. Anyway, it got me thinking if there was any relationship between the name of a country and its economic health or the lack thereof. Turned out that there were 7 Ms, 7 Ss and 6 Cs and 5 Bs. People in some parts of the world believe that there is a lot in a name. If that really were the case, maybe these countries ought to consider changing their names. If they don’t want to change their economic policies, that is.
Business and the new civil economy
I read a great book recently and wanted to share some thoughts on the same. The book is titled ‘The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda’ and written by Stephen Davis, Jon Lukomnik and David Pitt-Watson.
It is a progressive read in terms of explaining the rise of a new civil economy. It explains the Circle of Accountability to the new capitalists drawing parallels to a civil society. One thing is clear, that this book is published, that there are instances that have triggered this thinking, that there are rules, regulations, standards that are being rewritten, are all signs of progress.
That capital fuels reform is undeniable. Only now, the capital belongs to the working class as opposed to the individual rich. That corporate governance has a direct correlation to higher valuations of the company, other related benefits namely creation of more jobs is undeniable but what I found most interesting was that “momentum" of corporate governance reform at a company is a key influence on equity price performance.
I think the new civil economy affords new ways for investors to be engaged with a company but in the end it could come down to a matter of how many people can you actually have in the driver’s seat as opposed to it being a matter of fair and complete disclosure and even then it might be open to interpretation.
Since the society and shareholder are one and the same, it follows that companies should act in the interests of society at large. These universal owners expect companies to perform a certain way, which is no different from what we know as common sense. For example, creation of value is not a new principle. It still is the appropriate way to behave. That there are myriad of standards to follow is itself a huge deterrent for a company. A possible solution might be the Global Compact, which is but slowly emerging as a standard.
In essence, the individuals who own stock in the biggest corporations of the world have a majority over the individual rich. However, to simplify the concept, I am gong to use an example. An individual A owns 2% GE vs. individuals B through Z who combined own more than 30% of GE. For the B-Z group to make a difference they have to work together and the way they do that is through institutional investors, web collaborative tools such as, Wikis, rating services, investor advocacy tools, independent auditors, audit certifying agencies and the like. These collectively are the new information moguls. The recent fate of activist investor Carl Icahn, who failed to secure a seat on Motorola’s board belies the power of these new information moguls, what with one shareholder advisory firms siding with Carl Icahn and the other with the Motorola management.
The book nicely ends with a memo to the various players in the new economic ecosystem. Whether it is sustained, is to be seen in the future. For now, this book offers a lot of hope to someone who believes business does a lot of good for economies and societies.
It is a progressive read in terms of explaining the rise of a new civil economy. It explains the Circle of Accountability to the new capitalists drawing parallels to a civil society. One thing is clear, that this book is published, that there are instances that have triggered this thinking, that there are rules, regulations, standards that are being rewritten, are all signs of progress.
That capital fuels reform is undeniable. Only now, the capital belongs to the working class as opposed to the individual rich. That corporate governance has a direct correlation to higher valuations of the company, other related benefits namely creation of more jobs is undeniable but what I found most interesting was that “momentum" of corporate governance reform at a company is a key influence on equity price performance.
I think the new civil economy affords new ways for investors to be engaged with a company but in the end it could come down to a matter of how many people can you actually have in the driver’s seat as opposed to it being a matter of fair and complete disclosure and even then it might be open to interpretation.
Since the society and shareholder are one and the same, it follows that companies should act in the interests of society at large. These universal owners expect companies to perform a certain way, which is no different from what we know as common sense. For example, creation of value is not a new principle. It still is the appropriate way to behave. That there are myriad of standards to follow is itself a huge deterrent for a company. A possible solution might be the Global Compact, which is but slowly emerging as a standard.
In essence, the individuals who own stock in the biggest corporations of the world have a majority over the individual rich. However, to simplify the concept, I am gong to use an example. An individual A owns 2% GE vs. individuals B through Z who combined own more than 30% of GE. For the B-Z group to make a difference they have to work together and the way they do that is through institutional investors, web collaborative tools such as, Wikis, rating services, investor advocacy tools, independent auditors, audit certifying agencies and the like. These collectively are the new information moguls. The recent fate of activist investor Carl Icahn, who failed to secure a seat on Motorola’s board belies the power of these new information moguls, what with one shareholder advisory firms siding with Carl Icahn and the other with the Motorola management.
The book nicely ends with a memo to the various players in the new economic ecosystem. Whether it is sustained, is to be seen in the future. For now, this book offers a lot of hope to someone who believes business does a lot of good for economies and societies.
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