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"...most of our [investment] banking clients are going to zero and you know I wanted to downgrade them months ago but got huge pushback from banking." -- E-mail by ex-Salomon Smith Barney analyst Jack Grubman As skies darken for the airline biz, some big corporate names may be in for a rough ride. They aren't part of the airline industry, but to get cushy tax breaks they invested hundreds of millions of dollars in aircraft leased to major carriers. Now, with US Airways in bankruptcy and United Airlines (UAL) on the edge, the companies that invested in these so-called leveraged leases may lose out.

Already, Electronic Data Systems (EDS) is taking a $23 million charge in the third quarter to cover US Airways leases, part of a $300 million shortfall that tanked the company's stock. It could write down more if United goes bankrupt, too. Worse, Pitney Bowes (PBI) had $511 million invested in aircraft as of June 30, according to Securities & Exchange Commission filings. It is keeping close tabs on US Airways and United and ultimately could take a $100 million write-down, the filings say. AT&T reports $70 million to $80 million in liabilities and Whirlpool some $68 million.

Need another reason to reach for the Dramamine? Companies disclose little about aircraft leases unless they go bad, so expect more bumps ahead. Facing new rules aimed at ensuring the independence of corporate boards, many companies will have to start reshuffling directors. Case in point: IBM (IBM), which may have to boot a director off its executive compensation committee. That director, American Express (AXP) Chairman and CEO Kenneth Chenault, has been part of the four-member group that awards IBM's pay packages since 1998. In February, American Express signed a huge $4 billion deal with IBM.

Problem is, the New York Stock Exchange set new rules in August requiring that members appoint independent directors to comp committees. Once the Securities & Exchange Commission approves the rules, companies have 24 months to find directors they deem have "no material relationship" to them.

While no one is alleging a quid pro quo, governance experts say that directors who also are customers or suppliers can't objectively act in the interest of shareholders. "They are going to have to get these people off the boards or committees," says Beth Young, a director at the Corporate Library, a business watchdog group. Responds IBM spokeswoman Carol Makovich: "Just because they are our customer, it doesn't mean there is a conflict of interest." IBM won't discuss its business with other committee members. Calls to directors, including Chenault, were referred to IBM.

Sure, there's hardly a corporation that isn't an IBM customer. And plenty of companies have customers on their boards. An Oct. 1 study by exec search firm Spencer Stuart estimates that up to 75% of S&P 500 companies need to make board changes. Where are all the black business owners? That's one big question raised by an ongoing study of entrepreneurship by the Ewing Marion Kauffman Foundation. The survey of 64,622 households finds that blacks are far more likely than whites to try to start new companies--9.5% for blacks vs. 5.7% for whites. But census data show them far less likely to succeed: Blacks make up 12% of the population but own 4% of companies, compared with 75% and 85% for whites. "Blacks are starting companies at greater rates, but there is something within the process that causes them to fall out at greater rates, too," says Patricia Greene, a University of Missouri professor and study co-author.

Blacks may be more entrepreneurial because they find Corporate America less hospitable, suggests Larry Cox, the foundation's research director. But success seems to be determined by assets starting out. "Household wealth is the most important thing," says University of Texas professor John Butler. It not only funds staff and supplies but also serves as collateral for loans. Black households, on average, have just one-tenth the wealth of white ones--and that much less support for new ventures. How much should a company spend on research and development? The way CEOs answer the question depends to a surprising extent on the jobs they held before becoming head honchos. CEOs with legal experience are stingiest with R&D money, while those from marketing or research are far more generous, new research shows.

Companies spent on average $8,328 per employee on R&D, according to a study in the journal Management Science by Vince Barker, a professor at the University of Kansas, and George Miller, a professor at the University of Wisconsin. But CEOs with law degrees spent just $5,629. CEOs from operations were almost as cheap, spending $6,934. Marketing vets spent heavily--$10,286. And those who had been in R&D or engineering spent the most: $10,501. The longer the CEO was in office, the stronger the correlation, suggesting that over time, CEOs were able to mold R&D spending to fit their preferences.

To find data that apply to current economic conditions, the researchers examined R&D spending from 1989 and 1990, when, as now, businesses were cutting costs. They chose 172 companies from the BusinessWeek 1000 and R&D Scoreboard. (Numbers are adjusted to 2002 levels.) The National Science Foundation, which tracks R&D, finds R&D spending was flat through the '90s. The study also shows links between work experience and R&D spending because potential CEOs back then could easily spend most of their careers working in just one department.

But not now, says Barker. Most companies "rotate their executives through the functions that really help the company compete," he says. A good sign for future R&D spending? If they've had stints in the marketing and R&D departments, perhaps. Shoppers at the Lladro store opening this fall in Barcelona will be in for a shock. Instead of the usual dark, heavy, traditional wooden shelves loaded with porcelain figurines, they'll find a two-story, exposed-concrete loft meant to evoke a chic residence. Downstairs: a gallery with blackened-steel walls and amoeba-shaped seats.

Can this be the same maker of kitschy knickknacks on Grandma's mantel? Turns out, a new generation at the Valencia workshop--children of the three men who founded Lladro in the 1950s--is intent on remaking its image. The new stores are "young, contemporary, fluid, because we want to make a statement," says North America chief Jean-Luc Negre. With a year-old prototype store in Tampa doing well, the company and its New York-based architect, WalkerGroup/CNI, will be unveiling edgy variants all over the world this fall, from Troy, Mich., and San Jose, Calif., to Tokyo's Ginza.

The figurines themselves are also being updated, with a sleeker, less-kitschy look aimed at the next generation of collectors. As the economy continues its postboom hangover, the laid-off and unemployed have turned to alcohol--mixing it, that is. Bartending schools across the country are reporting big increases in the number of students learning the art of mixing cocktails.

Out-of-work dot-commers are flooding the National Bartenders School of San Francisco, where enrollment has nearly tripled since 2000, to 800 students this year. Says owner Roger Grimm: "The day the economy turned, our business started booming."

At the Bartending Institute of St. Louis, where enrollment has increased 30% this year, to 500, workers furloughed from the airlines are among the newest pupils. After all, bartending is a profession that's recession-proof, if not recession-fueled.


Cash Is for Losers
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