Comcast NBC Universal and Spinco

 About a month ago, Comcast surprised but did not shock the media world by announcing that they were divesting most of their cable channels. The properties affected were: CNBC, MSNBC, E!, SPFY, USA, OXYGEN and The Golf Channel.

Some observers said that it was a good thing as some of the networks could move into the digital world and dodge the problems cable is facing with millions of Americans cutting the cord. Tom Rogers, former head of NBC Cable and the creator of both CNBC and MSNBC saw the move as positive as his former “children” could be more imaginative and pursue other avenues with new revenue streams. 

Others said the job of the capable management that is taking over the new entity will merely manage the decline of these cable channels as best they can. Watching coverage of the story the term “problem assets” has cropped up with some frequency. That, to me, does not bode well for the venture.

A few optimists have said that private equity groups may come in and prop up a channel or two. Possibly, but my observing private equity over several years usually indicates that the partners do well and often leave the entity saddled with debt.

To the credit of Comcast, they are spinning off this new entity debt free. That is most unusual and highly ethical. A handful of pundits have suggested that Paramount and Warner/Discovery spin off their channels or merge with Spinco. It does not appear that they would be debt free so a merger might not be a good thing for Spinco.

Who could survive? I would say that CNBC has the best chance of the group. Their offices are in New Jersey rather than Rockefeller Center. Also, they are an established brand that has a devoted following (me included). Ad revenue has been good, and some say they currently give back profits to Comcast. In the digital world, they may be able to gin up enough subscribers to survive and prosper. They may be an attractive target for a behemoth in the financial world but that might slant their editorial content.

MSNBC has a bigger problem. Their offices are in the same building as NBC News and they will lose the support they can get from them. Also, their audience, never huge to begin with, has taken a big hit since Trump won the election on November 5th. Their programming is interesting but rather strident politically which may not appeal to advertisers.

The Golf Channel is a niche player and perhaps they could be absorbed by another big sports entity.

One final not so minor issue. Can these channels keep their names for a while? That would be very helpful as they try to build standalone entities.

This, to me, is the opening of another big change in the media landscape. Comcast is recognizing the reality that streaming is dethroning cable and they have accepted that.

May I take a moment to wish a wonderful holiday season to MR readers all over the world. Some 52% of you come from outside the U.S. I love hearing from all of you.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

An Honest Look at Greed

In 1987, Michael Douglas starred in a film entitled WALL STREET in which he played an unscrupulous investor named Gordon Gekko. He won an Academy Award for his performance. The most memorable part of the film to many was when he made a speech to shareholders of a company that he was “raiding.” To refresh your memories, the most quoted part of the speech was when Gekko said, “The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit.”

Most of us were taught either by our parents or religious instruction that greed was anything but good. In Christianity it was looked on as one of the seven deadly sins. It is often defined as the disordered desire for more than is appropriate or deserved.

The media tells stories of the greed of corporate executives or investors and question why there is so much inequality in the U.S as well as other nations. They have a point.

To me, the question that I always ask is: How much is enough? When does your desire to live in comfort (not unreasonable) graduate into greed?

As I write, the net worth of three Americans—Elon Musk, Jeff Bezos, and Larry Ellison is equal to the total wealth of the bottom 50% of American citizens. Even a staunch free market fan such as I have to shake my head and wonder. This is like the later part of the 19^th century when the Vanderbilts, Rockefellers, and Carnegie had a dominant part of US wealth.

A question that I always ask myself is who determines what the lid on wealth should be? Congress? Many members talk about fairness but then more loopholes are put into our Swiss cheese of a tax code and the rich only become richer.

Most of us, if we are honest, realize that we are a mix of Scrooge and Robin Hood. Greed becomes a sickness if we devote all our waking hours to capital accumulation at the expense of real wealth—personal relationships.

In the 1980’s “trickle-down economics” received a bit of traction. The theory was that the affluent and the rich do not spend all their income so part of that surplus in invested in new businesses that create jobs and generate new tax revenue. True, but as one old friend has told me, the trickle down is not spread out very evenly across the population.

Two economic giants have weighed in saying that greed is an integral part of a capitalist system. Milton Friedman, a Nobel laureate, wrote that the “world runs on individuals pursuing their separate interests.

My hero, Adam Smith, the father of economics put it this way back in 1776: “It is not from the benevolence of the butcher, the brewer, and the baker that we expect our dinner, but from their regard to their own interest.” Call it self-interest or even greed but it clearly drives the bus in a free market society. Greed motivates competition and we need competition for market growth. 

Analysts who look at inequality across the globe have often recommended income taxes as high as 70% would smooth things out. Few pay that much as an army of tax accountants and attorneys help the super-rich to sidestep some of the taxes or move assets offshore to more friendly venues.   

A few years ago, French economist Thomas Pikettywrote a best seller called CAPITAL IN THE 21^ST CENTURY. I read it and found he went even further than the people calling for a 50-70% tax rate. He called for a wealth tax on top of the confiscatory income tax. With massive wealth tucked away in high end art and collectibles plus global real estate, it would require a large bureaucracy to enforce, and the wealthy and their slick advisers would likely find a way to diminish the bite significantly.

Technological innovation has improved our lives tremendously in the last two decades. And, it has made some innovators mega-billions. 

Charities are receiving some of this newfound wealth. I hope that it increases in the years to come. As the great Greek poet Hesiod wrote: “Observe due measure: moderation is best in all things.”

 Even, I might add, in wealth accumulation.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

 

BORN ON 2ND BASE?

 At one time or another, you probably have heard the term “born on 3rd base.” Although there are several stories about its origin the term is widely attributed to football coach Barry Switzer who once said at a news conference, “some people are born on third base and go through life thinking they hit a triple.” 

Today, we will take on a group a bit further down the wealth scale. I dub them “born on 2nd base” while a long-time reader of MR calls them “the top 19%” who are ruining the chances of many Americans for upward mobility. My frequent MR reader said, “most of us despise the 1% but I really resent the next rung usually referred to as the upper middle class". I responded so you mean people born on 2nd base instead of third? He laughed and said I had captured it well. I found it interesting in that the Federal Reserve has recently released a report stating that as of December 2022, some 18% of American households had a net worth more than one million dollars. Given the rise in both equity and real estate values, we are probably up to 20-21% of total households hitting the now relatively meaningless statistic.

Is this reader alone in his anger? Nope. Over the last 18 months, I have heard from several readers who vented about how the upper middle class is practically building a moat around themselves. Here are some of their gripes:

1) Legacy college entrance—for years, elite colleges and universities tended to favor children of alumni. The time-honored reason was that the family would continue to be generous givers to the institution and the next generation would do that as well. Also, the noveau-riche could land a spot for a son or daughter with a seven-figure contribution. Some of this has gone by the boards as the most prominent institutions have huge endowments and face strong media scrutiny. Smaller colleges continue the practice as they are struggling for cash and are under the media radar that the Ivies and other leading schools face.

2) Upper middle-class parents send their children to SAT prep courses. Others take them on frequent foreign trips that widen their perspective and sharpen their foreign language skills. Most families cannot afford this.

3) Internships—This is generating some noise. An internship at the right firm is a terrific resume builder for a college student. So, Mom or Dad asks a friend to take their child on for a summer and often they will bring the friend’s child into one of their companies. This type of closed loop really occurs. A bigger problem is the coveted internships in NYC or in Washington, DC. Well-heeled parents can put their student up in expensive and safe digs for the summer. People of more modest backgrounds cannot do this. Many internships used to be non-paid. That has changed and some allow for college credit to be awarded for certain jobs. This tends to exclude all but the millionaire plus group if the internship is out of town.

4) Living in neighborhoods or counties with strong public schools

This one does not get a lot of media notice but, over the years, I have certainly heard many discuss it. Once, years ago, at a luncheon, a media rep said that he was moving to a suburban area with great schools. A colleague berated him saying why not stay in your current jurisdiction and fight for better schools. The rep said “why should I use my daughter as an experiment? It may take 10-15 years to turn the current school system around. If we move, we will pay higher property taxes, have a higher mortgage payment, and I will have a longer commute. But, I am giving my child a chance to get in to a top rated school. I make no apologies for that. I love my daughter!” Tied into this is that affluent neighborhoods fight against high density housing entering their domain. Part of may be to maintain strong property values but some could be racist tendencies.

5) Tax policies that favor the affluent—few people except some extreme progressives bring this up. Mortgage interest in the US is largely tax deductible. I have received several e-mails from readers saying that it is unfair to give homeowners such a tax break. Gently, I counter that it would be damn near impossible to strip that rule away with nearly two thirds of American households benefiting from it. Yes, it is not allowed in Canada but our friends to the north have never had this loophole.

Do children of the affluent but not super rich have an advantage over the middle and working class? Absolutely! Yet, they are often the ones reading to their children every night, driving them to soccer games or music class and being deeply involved in their youngsters lives. They are only wanting what is best for their children. This is an integral part of the American dream of having your children living better than you.

Is it unfair? Yes, those born on 2nd base do have advantages that most do not. I simply do not see it as a conspiracy against the underprivileged as some of my angry readers do. 

If you have any ideas on how to level this playing field, please drop me an e-mail.

You may contact Don Cole directly at doncolemedia@gmail.com or leave a message on the blog.

MUSINGS ON STATISTICS

 Author and humorist Mark Twain allegedly once said, “There are three kinds of lies—lies, damned lies and statistics.” It often gets a laugh despite advances in research over the last 150 years.

I spent a large part of my career working with numbers and still do. Statistics still fascinate me yet, sadly, I see them misused increasingly in the media and more glaringly in social media.

My first real encounter with statistics came when one of my older brothers took a college course in statistics. We discussed it quite a bit and, as a high school student, I bought a copy of HOW TO LIE WITH STATISTICS by Darrell Huff. The book was published in 1954 and by the time I purchased and devoured it, the year was 1966 and it had sold hundreds of thousands of copies.

Huff was cynical about statistics and stressed how marketers could be selective about what you were shown in making decisions. I vividly remember one effective example in the book. He talked of a survey taken in 1950 regarding the income of Yale graduates in the class of 1924. The average income reported was several times that of the national average. One might say no surprise as many Yale graduates were and are among America’s elite. Huff probed a bit—what of those who did not respond? Were they struggling compared to their classmates? Embarrassed by their relative lack of financial success? This was my first exposure to non-response error, and he did a better job explaining it than any college or graduate school professor that I ever had.

In college, I did fine in Statistics and firmly understood the difference between average and median which many in the media and business world still do not grasp or worse, use the two terms interchangeably.

In the advertising and marketing world where I spent the bulk of my career, the response to any research presented was varied. A wealthy businessman who owned 20 fast food restaurants chewed out a young and earnest member of my negotiation team by saying her buy was worthless as he did not watch the programs on the TV schedule. I had had enough and told him that he was a multi-millionaire, and it was logical that he was watching vastly different programs than his 18-34 target audience. He got red in the face, but his fellow members of the advertising co-op backed me up. Sales moved up nicely and he stayed quiet at the next meeting.

Other clients told me that all Nielsen ratings were nonsense as they had never been in a survey. A primer on sampling theory would have accomplished little.

Over the last 50 years, I have seen good, mediocre and poor studies. Here are a few things to keep in mind:

1) When you see the research, take your own temperature. How do you react to it emotionally? If it is a totally new topic, you are likely to be cool-headed. I have seen CEO’s or senior management bristle when research says consumers have issues with their product or service. “All our customers love us” was a line heard frequently yet their market share was not high. A new CEO was likely to be much more open to hearing bad news than their predecessors as they were there to turn things around. I have seen the same thing with shareholders. If an analyst posts a less than positive forecast for a stock that they own, often the response is that the category specialist is an idiot.

2) Try to separate your personal feeling from what the larger sample is telling you. I saw broadcasters dismiss cable and then digital possibilities as they felt their growth would hurt their livelihood. They were not objective at all.

3) Ask if anything is missing from the data and how was it asked. Most do not. 

4) I realize this is hard for all of us but try hard to keep an open mind and remain curious. Most people are not, and this is deadly in our era of rapid change.

I could not on forever and  provide some colorful examples of reaction to research, but I think it best if I take those stories to the grave.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The NFL and Private Equity

 In a few days, the National Football League (NFL) season will begin. Millions of Americans are chattering about the upcoming season and getting involved with their fantasy football groups. For a business news junkie such as I, what turned my head was a rule change that will let private equity firms** buy in to NFL franchise ownership.

There are some caveats:

1) A maximum of 10% of any club can be owned by private equity funds. More than one fund can be involved but the total may not exceed 10%.

2) Pension funds and sovereign wealth funds (often foreign governments) are not allowed.

3) The controlling owner of a team still must maintain a minimum of 30% ownership. Additionally, no team may have more than 25 total owners.

4) Private equity will have no voting power. 

5) Personnel decisions of any magnitude will not be made or involve the private equity folks.

6) A private equity fund can invest in as many as six NFL teams but must hold at least a 3% equity position on each team it chooses. Also, the holding cannot be sold for a minimum of six years.

7) A careful review process will be taken to be sure that every private equity group passes muster with the NFL.

Okay, so who cares?

Well, actually this is nothing new in the world of sports. The MLB, NBA, NHL and Men and Women’s Soccer leagues all allow 30% ownership of a franchise by private equity. The NBA, NHL, and MLS also allow a single private equity fund to own 20% of a franchise while the MLB and NWSL limit it to 15%.

Why is this being done? For years, major league sports franchises were often referred to as a plaything of a rich businessperson or family. As the value of franchises have soared, particularly in the NFL, it may be hard to find new buyers. 

As an aside, I have often found people refer to successful people as billionaires. Well, a billion is one thousand million. According to FORBES, there are approximately 2,780 billionaires on earth with the U.S. having just over a quarter. The number floats a bit depending on equity and real estate market conditions. So, there are not that many people out there who can buy a franchise outright. Some have no interest in it, others wish to keep a low profile, and others do not want to sell lucrative business interests or take a huge loan to buy the franchise. 

Also, prices are moving up smartly. Just last year, the Washington Commanders sold for an estimated $6 billion. Other franchisees are easily worth significantly more and several years from now could easily double in value.

Selling off a portion of your club without losing any voting control “unlocks” some value for the franchise owners. Rumblings are that stadiums could get a facelift or facilities could be upgraded. The private equity folks are locked in for six years and, by then, the franchise could be worth much more.

Why get involved without voting rights? Owning a franchise or a small piece of one is the armchair dream of many. I did it myself. Back in the 90’s, the then Cleveland Indians (now Guardians) went “public”, and you could buy shares. As a child, my dad, a Midwesterner, generally only took us to Fenway Park in Boston when the Cleveland ballclub was visiting. It stuck with me. So, as a bit of a lark, I bought a few shares. It felt great even though I was not sent free playoff tickets. About 15 months later, I sold out for nearly triple my money when the club was purchased. I was no longer an “owner”, but it was a great, fun, lucky and somewhat lucrative experience. 

So, some private equity groups may want to participate as voyeurs or for diversification or thinking that the long-term payout could be good when a franchise was sold.

Interestingly, many observers feel that private equity is often unsavory. You read that many are asset stripping operations where they buy a company, sell off divisions or products, pocket some money and employees are left high and dry in a firm that is greatly diminished in size or future prospects. Don’t believe it? Here is what Warren Buffett and the late great Charlie Munger had to say about it at last year’s Berkshire Hathaway annual meeting:

https://www.youtube.com/watch?v=r3_41Whvr1I

Or, for a deeper dive, read the recent book of my favorite financial journalist, Gretchen Morgenson—THESE ARE THE PLUNDERERS: HOW PRIVATE EQUITY RUNS—AND WRECKS--AMERICA.

With the NFL, to me, there is a likely twist. NFL owners are largely tough minded and smart billionaires. Maybe they are inviting private equity players into their tents but the owners may benefit far more you might think.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

**What is private equity? The SEC defines it as “a pooled investment where the investor pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund. …….They often focus on long term investment opportunities that take time to sell with an investment time horizon typically of 10 or more years.

American Wealth Update Plus Global Gini Statistics

 Earlier this week, I put up a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”

Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm. 

Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:

1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).

2) Gini Coefficients estimated levels of inequality across the globe. 

1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.

Here goes:

The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).

The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.

The top 10% has 62.3% of the wealth.

The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.

Finally, the bottom 50% have 5.6%.

Source: St. Louis Federal Reserve Bank, 2024

All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund. 

Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence. 

2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient. 

What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.

Still, here are some stats from the World Bank.

The least egalitarian places on earth (highest Gini Coefficient) include:

Nation Gini Score

South Africa 63.0

Namibia 59.1

Suriname 57.9

Zambia 55.9

Belize 53.3

Brazil 52.9

Columbia 51.5

Angola 51.3

A score over 50 is looked upon as a danger zone with extreme inequality.

Those with the lowest Gini Coefficient are all in Europe. Some examples are:

Nation Gini Score

Norway      22.7

Slovakia      23.2

Slovenia      24.0

Moldova      25.7

Netherlands      26.0

Belgium      26.0

Iceland      26.1

Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well. 

What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45. 

In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.

Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here. 

Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.

How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.

If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.

In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.

Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments. 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

Earlier this week, I put a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”

Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm. 

Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:

1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).

2) Gini Coefficients estimated levels of inequality across the globe. 

1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.

Here goes:

The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).

The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.

The top 10% has 62.3% of the wealth.

The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.

Finally, the bottom 50% have 5.6%.

Source: St. Louis Federal Reserve Bank, 2024

All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund. 

Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence. 

2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient. 

What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.

Still, here are some stats from the World Bank.

The least egalitarian places on earth (highest Gini Coefficient) include:

Nation Gini Score

South Africa 63.0

Namibia 59.1

Suriname 57.9

Zambia 55.9

Belize 53.3

Brazil 52.9

Columbia 51.5

Angola 51.3

A score over 50 is looked upon as a danger zone with extreme inequality.

Those with the lowest Gini Coefficient are all in Europe. Some examples are:

Nation Gini Score

Norway      22.7

Slovakia      23.2

Slovenia      24.0

Moldova      25.7

Netherlands      26.0

Belgium      26.0

Iceland      26.1

Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well. 

What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45. 

In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.

Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here. 

Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.

How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.

If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.

In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.

Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments. 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

CEO COMPENSATON

 You see and hear a great deal about inequality these days. It has become a hot political issue to some, but many seem to take the “I’m doing okay” attitude and ignore what has been going on in recent decades. 

Every year or so, a stream of articles are released across the media about how Chief Executive Officer (CEO) compensation is outrageously high. The statistic that is used most often is that the average CEO of a Fortune 500 company has a compensation package that is 360 times greater (some say 320 times) than the average employee of that firm.

Eye popping numbers such as that certainly get people’s attention and make for good copy. The question few people ask is how did this happen over the past several decades? I have a few theories that I will share with you. Sadly, I do not see a workable solution to the issue. 

If you study annual reports of leading companies, they often give detailed information on the different committees that outside members of the board of directors serve on in the organization. Look closely and two things pop out. First, the CEO of the company often serves on the board of directors of a member or two of his or her own board. Interlocking directorates are a real thing. Dig a bit deeper and you sometimes find that their “friend” who has the CEO as a director in his or her firm is surprisingly often on the compensation committee to determine the salary, bonus and perks of those in the executive suite of the corporation. Or perhaps a CFO or Vice Chairman is on the friend’s board.

So, if you have a buddy or two on the compensation committee, who is also the CEO or senior executive of a company of which you are a director, your compensation will likely not be “light” when it comes time for the group’s recommendation for your next year’s salary or bonus.

If you speak with many people about this apparent conflict of interest, they smile and often say that the problem can be alleviated by hiring an executive pay compensation firm. This, to me, is laugh out loud funny. Think about this for a moment. If a compensation firm continually low balls (translates provides realistic) compensation package for a CEO word gets out and the firm suddenly has fewer clients. They often provide recommendations by “benchmarking” what leadership is getting in companies of similar size or competitive category. So, recommendations of these non-partisan experts often maintain the status quo. The compensation committee on the corporate board do not often enough buck the compensation firm’s recommendations.

An argument that some people use is in defense of lush compensation is that today more is expected of a large company CEO. Yes, the world is more complicated. A CEO must have a better grasp of economics, world events (most huge companies operate globally), and public relations than leaders in the past. They also have need to be media savvy. With the growth of CNBC and Bloomberg, CEO’s have become celebrities and cannot behave in public as some 19th century robber barons did. While this is all true, they have teams of experts around them, and they are better educated than most leaders a generation or two ago. 

For a few decades now, Warren Buffett has told us that when you buy shares in a company take the attitude that you are an owner of the firm (because you are!). As is often the case, I agree with the great Buffett. So, as an owner, read the annual report and spend some on the compensation of those in the executive suite. If the company had a poor or mediocre year, should the CEO receive a lusty bonus? Was compensation tied to stock market valuation of the company and you noticed that the company bought back many millions in shares even though the stock was trading at an all-time high? Does the employment agreement contain an enormous golden parachute that kicks in even if the CEO was fired for poor performance?

If you are an “owner”, read up on your company. People tell me that they only own 100, 500, or 1,000 shares. What can they do? Write a strongly worded letter to the board. Vote against what you deem to be exorbitant pay packages. After all, it is your money.

Some counter that the company has made them rich or comfortable. This is especially true in highly successful tech companies. They do not begrudge the founder or current leader eye popping salaries, bonuses or sweetheart stock options. I get that. Yet all 500 companies have not made their shareholders financially comfortable.

My long-term fear is that if the present trend continues more people will want Congress to set income caps for senior executives in publicly traded companies. Do you really want Senator Elizabeth Warren writing that legislation? I greatly admire how she took down some financial executives after the 2008 debacle. At the same time, I do not want her and fellow travelers interfering with the policies of US companies operating in a somewhat free market. Let the owners decide!

So, if you are a shareholder of any size, study how YOUR company is operating. You may be surprised at what you find.

If you would like to contact Don Cole directly, you may reach him at doncolem