19. November 2008 by Tony Magana.

Read the daily newspaper or watch any mainstream news show on television and it seems clear that America’s concept of the corporation is under attack. In April this year much was made about reports that a majority of corporations are not paying taxes and everyone is familiar about the scandals of stratospheric executive salaries and bonuses of those who work for companies now asking for government bailout.

Following the scandals of Enron,Tyco, and Adelphia among others, the Congress passed a law called the Sarbanes-Oxley Act in 2002 which was supposed to prevent corporate mismanagement.  The main problem at that time was that the record keeping of corporations  was not objective or transparent even when done by separate companies. Conflicts of interests were occurring between accounting firms who edited the corporations, corporation executives, corporate board members, and sometimes even stockholders in an unbalanced way.  This measure was designed to combat outright fraud accomplished by falsification or obscuration of records from principle players in corporations that would negatively affect the stockholder. However, the Sarbanes-Oxley Act did not address problems in corporate governance.

Americans wonder how graduates of great business schools like Wharton and Harvard have remained at the helm of multinational corporations and remained silent while the corporations in their charge were like a train in old movie about to run off the cliff.  Booz & Company just completed an annual study that looked at why CEOs at major corporations are performing so badly. They looked at 10 years worth of data from the largest 2,500 companies.

They identified a disturbing growing trend that is contrary to commonly held beliefs. Many in the business world and general public have heard that CEOs are immediately expected to improve a corporation’s stock price and get short time gains with about 2 years. Failure to get quarterly gains within that 48 month period so the urban legend states will result in a CEOs quick exit. In fact, quite the opposite is the case.  CEOs from failing companies have only a 2% chance of losing their jobs if they are losing ground and even for those with 25% losses the risk of being fired was only increased to5%. Asia and Europe did much better jobs at preparing corporations for successions in leadership than the United States. America’s system punishes innovation and change and instead inspires new executives to follow the path of failure.

The Booz & Company researchers found that companies plan poorly for succession. They often hire a new CEO who has no previous experience from the company to act as an “apprentice” to the old CEO for awhile before he is allowed to take the reins.  Better preparation of lower executives for succession and promotion within the company usually resulted in greater corporate success. They also said the common American practice of making the CEO and Chairman of the Board of the Directors , the same person, also was more often associated with business failure than success.

At the same time, many are questioning the common practice of giving high level executives exclusive and exorbitant stock options.  Research by several authorities has shown that when they control more than 20% of the stock of a company the chance they will act against the interests of the stockholders in general for the long term is significantly increased.  Corporate executives have been gradually getting more power over stockholders  as well. Federal and state courts have upheld the rights of executives to keep information to minority stockholders. Since most stocks in mutual funds held by retirement accounts the distance of stockholders to management in modern corporations is more than the original concept many believe was the intent in making corporations. Despite attempts by the SEC and others to organize shareholders for the most part small shareholders in most American companies have no real say in corporate governance.

Conservative political thinkers need to address the current corporate governance problem which has contributed so heavily to our current economic downturn.  The Constitution clearly gives the Federal government to responsibility to affect Commerce.  Those who run publicly traded corporations have a legal responsibility to run those corporations competently, fairly, and in the interest of the stockholders.  Private property rights of stock holders need to be as avidly guarded as those of ranchers and farmers.  Corporations need to develop much more transparency in their functions and Congress must act to improve the right of stockholders to not only become more knowledgeable in what is happening with their property but also in being able to address the boards of directors and management.  Empowering stockholders will help the American public who feels so alienated from the current economic system once again be the active participants in corporate governance that is intended in the publicly traded corporation. Failure to do so will foster further mistrust and likely lead to even more corporate mischief and collapse. Corporate boards and executives must be accountable to the stockholders.

Tony Magaña grew up in McAllen Texas, attended Texas A&M University, holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.

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18. November 2008 by TBarclay.

President-Elect Barack Obama indicated that addressing the health insurance would be his third priority but seeing the relationship to the cost of health care to the cost of employee to business may mean that he needs to move it higher up the priority tree.  Although everyone can agree that poor planning and unrealistic expectations contributed to the out of control health care costs at General Motors, the truth is that for all employers even those that are nonunionized the current cost of maintaining health insurance for employees is unsustainable.

Business needs to be able to determine what are the costs of a job in order to make plans. The current environment creates a situation where the average business may be seeing increases in health care costs of about 40% per year. Regardless of how good the productivity of the worker or the company this cost alone may eventually be the major factor in determining our levels of employment especially for those low wage earners with little skills. We cannot stabilize our economy or our level of joblessness unless we begin to work on health care reform now.

Senate Finance Chairman Max Baucus (D-MT) has released his thoughts in A Call to Action:Health Reform 2009.  This plan would create a national health care insurance exchange where private insurance companies would compete with a basic government sponsored health insurance plan either of which would be employer based.  For those aged 55 to 64 there is the possibility that they could enroll in Medicare. Higher income wage earners who receive employer based benefits would be taxed for their health insurance benefits to help subsidize lower wage earners. Government programs for the poor, disabled, and children would be strengthened. Insurance coverage would be mandated for all Americans.

Health care is so complex and has so many lobbying interests including pharmaceutical companies, hospitals, doctors, health insurance companies, and unions to name a few that it seems almost insurmountable. Already the plan this week has been attacked by conservative and liberal think tanks as quite flawed however many did say it was a useful starting point and in that was an important work.  The plan does address a major problem, that vulnerable group of the population who often are working but can not get insurance unless it is employer based, the 55 to 64 year olds ability to get insurance.

The most significant question for the future of health care in America is whether there can ever be a totally private program supported by government regulation and tax policies or will it be always necessary to have a significant government programs such as Medicare, Medicaid, and CHIP to cover those not covered by private programs.  Making health insurance employer based will likely make the additional existence of a government sponsored program for those not employed like elders, the disabled, the unemployed, the chronically ill, and the mentally ill always necessary.  On the other hand, if we make a consumer based health insurance program that is not specifically employer based then perhaps in the long run a simpler system that would equalize things for the employed and the unemployed might be possible.

The goal of the Baucus programs is to maintain health care costs at the current levels by cutting waste, prioritizing primary care and prevention, setting standards for efficiency, and improving information systems. These are worthwhile endeavors, however, whatever we do the future will likely see increasing health care costs due to the aging of the population and the continued development of medical science. Efficiency is important but realistically  maintaining a high level of  health care for the future will ultimately require that we drastically improve the productivity of the average American worker. If the overall productivity of the economy cannot be increased than no matter how efficient the health care system there will come a point beyond which further expenditures are not tenable and health care priorities will need to be triaged. For example, already many European countries already are limiting care to the extremely elderly in such things as heart disease.

America has to come to terms that there may be limits in a what our health care system can accomplish but also because of that we have to demand that there is a system that is fair to all and with the least waste possible. The Baucus proposal is not perfect but it does bring up many important issues.

Those who wish to abandon government programs now or avoid a national system have to do the leg work to come up with proposals that will deal with both the unemployed, the employed, children and the elderly. A totally private system that is supported by tax policy and regulation such as the Federal Employees Health Benefits Program (FEHBP) which could be adopted as a nationwide program has been advocated by the Heritage Foundation and others. In the long run this would be a better single system of competing private insurers for all Americans and not requiring a government insurance plan for any. If Republicans and other conservatives wish to gain the necessary consensus then they must come up with realistic action plan to implement this program.

Senator Baucus rightly has stated that his plan would take years to finalize and would require a monumental effort to implement.  An argument against massive total reform is that it may be so hard to accomplish and take so long that discussing it is useless. Perhaps the best way to look at meaningful health reform is to do it a step at a time. If we prioritize dealing with insurance for the employed right now and stabilize our government programs than perhaps that will buy us time in the future. We cannot wait three to five years to reform health insurance for the employed because the level of uninsured may swell to above 50% nationwide.  Incremental change in the health care system, a step at a time, may be easier than jumping into the unknown.

Tony Barclay is a retired physician and graduate of Harvard Medical School.

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14. November 2008 by Tony Magana.

Everyone agrees that General Motors has two problems.

The first problem they have is “legacy costs” which are the high costs of health care they must pay for retired employees. Every worker at GM is currently paying for the benefits of 2.5 workers who are retired.  While the national average that workers contribute for their own health care is 32%, non-salaried workers at GM only pay 7% for their own health benefits. The retirement budget will actually double in the next few years because nearly half of almost 400,000 workers who are currently in the program are going to retire in the next five years. In fact the leader of the United Auto Workers, Ron Gettelfinger, has said the only way out of the health problem is for the United States to adopt a national federalized health insurance program.

The other problem is simply that GM and the other Detroit automakers in trouble simple have no idea about how to make cars that Americans want.  Toyota foresaw the need to make fuel efficient cars in the 1970s and made it a major point of its global growth. Meanwhile American automakers spent most of their money lobbying Congress to pass import taxes on foreign small cars and allow American car makers special allowances out of making gas efficiency a priority.  Each year they made a few inferior small cars as tokens and instead focused on making profitable SUVs. By making the big SUVs they played a definite part in convincing the American public that energy dependence and forward thinking energy policy were unnecessary.

Toyota spends millions of dollars studying what their customers want. They have a special think tank in Torrance, California which constantly collects data. In fact, according to Fortune magazine they have a special name for this type of research ” genchi genbutsu - go to the scene and confirm the actual happenings”. Toyota has invested in thousands of U.S. workers and built U.S. plants in areas of the country that needed employment. They advanced the concept of the hybrid car to the extent that they came up with the only successful hybrid concept on the market.

Finally, the United Auto Workers do not want to compromise.  The labor movement is important in industrialized societies to protect workers but the current situation is out of balance.  The labor unions themselves assisted executives at GM and the other companies to move in stupid directions of marketing and product development. In press releases, the UAW has basically said that under all circumstances they must be the highest paid workers in the world.

The United States bailout of Chrysler years ago was said to be a success by some because there was a profitable return on the loan. However, it was a dismal failure because it did nothing to change the behavior of the most juvenile industry in our country.  Compare the auto industry in America to the computer industry or the aircraft industry which are fighting bitterly against world competition instead of asking for government handouts and bribing their local Congressman and Senators as has happened in Michigan.

Artificially maintaining GM and the other failing Detroit automakers will suck up possible resources that could be used to further decentralize the industry. In California,  a company may be able to make electric cars for $10,000  if it can find the funding. This is an industry that needs to be diversified and not held by a few corrupt companies in one place in our nation. To those that say our national security demands we help GM and the others, I say it is exactly for national security that we must allow diversification and the development of more competitive companies who understand that innovation not corruption is the way to success. If our country really needs change than we need to find new companies to develop new and better types of vehicles.

Tony Magaña grew up in McAllen Texas, attended Texas A&M University, holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.
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