The Virtue of Windfall Profits

There has been much written about corporate responsibility as of late. And with good reason, as we have watched the collapse of several large corporations over the past few years due to poor management, deception and outright thievery.

As I was driving home, a gentleman who is running for a local city council seat was being interviewed. He was talking about the various reasons he had chose to seek a seat on our local city council. One of the last reasons he gave was his desire to bring back corporate responsibility. In making his case for the need for corporate responsibility he stated the following:

And should I run, I will ensure that grossly disproportionate corporate
profits, such as those by the oil and gas industry are reigned in. Profits
of that magnitude are nothing short of sinful.

I am sure that there is a part of this that is simply campaign rhetoric...If for no other reason than this guy, should he be elected, will probably not be able to do much against the oil and gas industry from his dusty chair in a local City Council hall. However, I wholeheartedly disagree with his association of large profits with sinfulness. If we look at the role of a corporation, and take an honest look, it's sole purpose is to create value for its shareholders in perpetuity. There's a value for value exchange between the management of a company and its owners (shareholders). In exchange for capital and liquidity, the company strives to provide a return. To say that doing this well, or exceptionally well is sinful doesn't make sense. It's like saying that a running back ran too much and should have held back to let someone else run a little bit, or to save energy for some other purpose other than winning a football game.

In an ideal world, corporations have only one responsibility. To provide sustainable returns to its owners. It is a steward of their money and their investment. Corporations are only responsible for ancillary things outside of their business (ie: environment, wages, benefits) in so far as it impacts their responsibility to make money for their shareholders on a recurring and sustainable basis. The only sin a corporation can make (if it were possible for a non-person entity to sin) is to not provide a return to its shareholders. Windfall profits are not a sin, but rather a virtue (if once again and entity can possess such qualities). The reason I point out entity is that hopefully, shareholders as individuals will distribute their wealth as they see fit. Some for philanthropy, some to simply enjoy their money. But the responsibility is on the individual owner, not the corporation.

One can argue corporate excesses on its executives, but once again, as shareholders the owners have the ability to help regulate it. One can say that profits are unfairly divided up to executives before they are distributed, but once again, a corporation that does this will not have the opportunity to continue to provide sustainable results as its shareholders, in theory, will diminish and seek stronger returns with less cost elsewhere.

I'm not an economist, just an average joe. But I think that windfall profits, if achieved within the framework of honest work and a little bit of luck is to be expected, if not anticipated from the owners of the company. Those owners, in turn, have the right to pursue a sinful or virtuous use of their returns.

A Sign Of The Times

While driving tonight, I heard an interesting advertisement from one of the national home builders in our area. It essentially says that you can buy a home from them with a $1 downpayment. The fine print says that you have to put a binder down with the contract but it is fully refunded less $1 at closing.

This is the same company that two years ago offered several models, would only allow you to choose between 3 exterior paint combinations, a handful of upgrades and no interior painting. Essentially, they were saying , "If you don't like the home like this, that's ok because there are 8 people lined up behind you who will take it as is.

I'm thinking the $1 "online special" is a sign that the time are a'changin'. The market is shifting in favor of the buyer, and hopefully the homebuilders socked away the last few years of profit to get them through the coming months where they are going to have to move some inventory and get it off their books.

I'm guessing that these guys, since they own the mortgage company, figure they can offset some of the real estate losses or anticipated losses through their financing divisions.

It isn't that I'm a doom and gloomer on real estate. In fact, I think some people are having knee jerk reactions to the market. If you buy real estate at a fair price, and can afford to hold on to it, your money is probably as safe there as in any other investment over a long period of time. But, the builder's aren't going to be able to keep pumping out the houses in our area like they have been over the past several years. People are going to be laid off. Contractors are going to be hunting down work. And the cost and time period for the consumer are going to be reduced.

Overall, it isn't a bad thing. They've had quite a few years of plenty, and hopefully have planned for decreased margins. For homebuyers, it's a great time to be house shopping.

The Naked Truth

I found out something new about myself this morning: I do not like shaking hands with a naked man. Some of you may have already known this about yourself. For me, it wasn't that I thought I might like it, but that I never realized how much I would dislike it. Quite frankly, it's a very uncomfortable experience.

I worked out early this morning, and on my way into the gym chatted with a gentleman as we were walking into the locker room. At the conclusion of my workout, I went through my normal steam room, shave, shower and dress routine. Every morning there are guys finishing up their workouts and getting dressed for work. Nobody is really clothed. It's not a big deal, it's a locker room. However, the gentleman with whom I'd chatted with in the parking lot had a locker right next to me. As I was tying my necktie, I hear "By the way, I didn't introduce myself...I'm John Doe". I turn to introduce myself and find that John Doe is stark naked holding out his hand. I'll be honest, I actually thought, at the moment I realized he was unclothed and holding out his hand, that I might be able to keep turning and pretend I didn't hear him. But I had already made eye contact.

And that's the most uncomfortable part about shaking the hand of a naked man. You absolutely must continue to make eye contact. You will notice in a locker room that nobody has very serious, eye to eye conversations. This is a general defense mechanism in men. It says: "Listen buddy, we can chat for a bit about general stuff...but let's be honest, most of us are unclothed, I'm not going to look at you while I talk to you." Instead, we look into our lockers and talk over our shoulders. The offer of a handshake is a egregious departure from the generally understood and unspoken norms of locker room talk. I don't hold it against him though. He was simply being friendly. And he taught me a very valuable lesson about myself. In general, I am uncomfortable shaking the hand of a naked man.

Paying Close Attention

I have been known to have things slip past me on a pretty regular basis. My wife handles a lot of things around our house, and sometimes I like to "help" her by suggesting she look into something, or call someone about something. Normally this backfires as it did today.

My email to Amber:

Amber,

The guy I had lunch with today is XXX XXXXX. He owns XX XXXXX
Insurance agency. I was telling him about our homeowners insurance issues,
and also told him we had our auto insurance with XXXX. He said he would
be willing to bet quite a bit of money that YYYYY would beat XXXXX in price on
our auto insurance. Thought I'd let you know....in case you wanted to
price compare them.

Amber's response to me:
Thanks honey... That was done months ago. We don't have XXXXX
anymore.

Yeah....nothing gets past me.

Elevator Etiquette

I work in a fairly large building comprised of 4 floors. There are four other companies in the building alongside of us, and we all share various floors throughout. I typically take the stairs. However, when my hands are full, I'll ride the elevator to the second floor two or three times a day. My lifes experience with elevators is limited at best, but I have come to dread these rides as exercises in awkwardness. So I've devised a few simply tips for elevator riding:

1. If you are the first person to board the elevator, please assume the role of the driver. Verbally ask your fellow riders "What floor please?" A gruff head nod is not an acceptable way to ask other riders what floor they need.
2. If you are the self designated floor chooser, do not simply choose your desired floor then look at the ceiling as if no one else is on board with you.
3. Don't talk on your cell phone in the elevator. It's confusing to the rest of us, and normally breaks a very awkward, self imposed silence.
4. Do not laugh at a voicemail or a text mail in the elevator. If you do, do not be offended if I check my fly - just to make sure...
5. In a mirrored elevator, only look up or down. Otherwise, you will inevitably be caught and perceived as staring at someone. I have found that people do not like to make eye contact on elevators. Additionally, yet equally important, people do not like to be stared at in general.
6. If you are a non-smoker, and find yourself crammed into an elevator with smokers returning from a smoke break....do NOT cough. It is impossible to escape the nasty looks in a mirrored elevator.
7. Do not pass gas in an elevator
8. If you break suggestion #7, then ride the elevator to the top floor. First of all, you should suffer alongside everyone else. Secondly, everyone will assume that the first person to get off was the culprit.

Congratulations to The Molehill

My buddies Kevin and Tom just had one of their products, TICK, featured as one of the screens around town on the Signal vs. Noise blog. Kevin and Tom are both incredibly bright and have a way of finding pretty simple solutions to make work easier. Congratulations guys!

Conflict Resolution

Here's an interesting question: Why does it seem that the U.S. is at the center of negotiations in most of the current, major International Conflicts? The North Koreans effectively said they would not negotiate unless the U.S. was at the table. Iran's president sent an open letter to President Bush. And in the Mideast right now, Secretary Rice appears to be front and center.

Does anyone think this is an accurate perception, or simply a perception colored by news that is created and distributed in the U.S. and as such, rightly focuses on the U.S. role in these events. Or, is there in reality, an expectation of the International community at large, that the United States should play a major role in the resolution of international conflicts? If so, why is this?

The Hope of Tomorrow

The idea of this blog is to provide a forum for me to express my ideas, opinions and general musings. My goal is not to create a place for a reader to come to find interesting articles that I've linked to. However, when I read something that has an impact, I don't want my foolish pride to stop me from posting it.

Here's a great article done by ESPN's Chad Ford. He's a columnist for ESPN and also a professor of International Conflict Resolution for Brigham Young University - Hawaii. He spent some time following a program where basketball is used as a forum for interaction between young Jews and Palestinians in Israel. What hit me most is how much our kids will impact tomorrow. And how much the joy of youthfulness can be used as a common denominator and a bridge between what can, at times, feel like an impassable chasm.

For the article, click here

What Is A Proportionate Response?

"The truth is, let me say this clearly, we didn't even expect (this)response.... that (Israel) would exploit this operation for this big war against us," said Komati. He said Hezbollah had expected "the usual, limited response" from Israel to the July 12 cross-border raid, in which three Israelis were killed.
- From breitbart.com (see full article here)

With the current conflict between Israel and Hezbollah, I seem to be hearing a repetition of the same sound bite from various leaders of other countries. The gist of it is that Israel's response has been disproportionate. It's hard to tell simply from the television what the impact of Israel's efforts to weed out Hezbollah have been on the average Lebanese citizen. But even if the impact is not quite fair to them, I think that's Israel's entire point. Not to hurt your average, go easy citizen, but to incent them to take control of things in their southern region. It's collective punishment in a sense. I remember collective punishment as someone hiding chalk in middle school, and the teacher forbidding to release us to the joys of recess until the culprit came forward. Normally, the culprit would eventually give in before we had to give him/her up. I always thought they did this out of a sense of the greater good. But that is a very childish example. For a very grown up and well thought out description of collective punishment, specifically as it relates to the current conflict that seems to be filling our screens each night, see this post from Messrs Posner and Becker.

Getting back to the idea of a disproportionate response. I think this idea is at best ludicrous and at worst, completely ineffectual. The whole idea of a disproportionate response is to bring swift resolution to an issue. A proportionate response is, by its very nature, a catalyst for slow, continual escalation. In the case of Israel, let's say that, as a proportionate response to the kidnapping of two of its soldiers, it kidnapped two Hezbollah terrorists. Then, Hezbollah in return kidnapped 3 more and Israel followed suit. Or in the case of rockets (which seem to have a history of leaving southern Lebanon and landing in Northern Israel), let's say for every rocket fired (randomly I might add), Israel fired one back. The point is that there is no end game here...just a slow escalation. The United States dropped the atomic bomb on two islands, not because it wanted to wipe out cities in one blow, but because it believed that this action would but a definitive end to a conflict that would have lasted years at the cost of many more lives. The atomic bomb was the ultimate disproportionate response, but depending on which side of history you end up on, it effectively stopped a war that appeared would not have ended short of an invasion of the Japanese mainland (which would have cost an incalculable amount of death on both sides of the conflict).

Now someone may say "Wait a minute...Israel is attacking Lebanon and Lebanon did not kidnap its soldiers!" I understand the distinction very well. But I do not agree that it is an appropriate one to use in this case.

The Lebanese government has been asked time and time again to reign in these guys who are taking pot shots at Israel. The U.N. has some sort of observation post (observing what I don't know, but it certainly hasn't seemed very effective). With rockets and cross border raids still occurring, one can draw several conclusions:
Lebanon does not have the strength to reign in Hezbollah
Lebanon does not want to reign in Hezbollah
Lebanon sanctions the actions of Hezbollah

I'm not a Middle East expert by any stretch (I'm not much of an expert at anything). But from what I've read, Lebanon appears to be a fairly moderate country within the Arab world. In some respects, it seems to be quite modern. So I doubt very much that the government, which probably depends on its overall blended moderation for survival, actually sanctions the actions of Hezbollah. Which leaves only two options: It either lacks the strength of force to stop Hezbollah or it lacks the willpower/desire.

So what option does this leave Israel? Remember, this is a country that is surrounded by people who do not like it. Not because of policy, but because of who they are. There is no other option but disproportionate brute strength. Collective punishment with the hopes that the negative incentives do not, in the end, outweigh the desired results.

As an interesting exercise, replace Israel and Lebanon with the United States and Mexico. If there were a rouge group within Mexico who routinely FIRED ROCKETS into Texas, or attacked U.S. Border Patrol what should we do? We should ask the Mexican Government to round them up....right? And if we followed this step, but rockets kept falling, what should we then do? Fire a few rockets back? If you were to put the U.S. and Mexico in this situation, the peso would quickly be replaced with crisp dollar bills. There's no way we'd stand for it. And we shouldn't. Our citizens should not have to worry about being attacked within our own borders. Our Border Patrol should not have to worry about being shot at within our own borders. And Israel should be able to use collective punishment with the hopes of putting a very quick, and permanent end to Hezbollah attacking its citizens. And Lebanon, when it is all over, should be thanking them for doing what they either didn't want to do, or couldn't do.

Now, if I were Israel, when this were all over, I'd offer to pay to repair the damage to areas that weren't necessarily controlled by Hezbollah. I'd tell the Lebanese people...."We are good and decent neighbors. You do not ever have to worry about us instigating attacks on you. But keep your own citizenry in line. Play by generally accepted rules. If you do not do this, if you refuse to stand up then we will do it for you once again."