Magazine

Executive Summary


Services Show Some Life

Damn the mixed signals—full speed ahead! That's apparently what investors concluded on Oct. 5-7 as they piled back into stocks and pushed up the S&P 500 by 3.2%. The job news continued to be grim, with the Labor Dept. reporting on Oct. 2 that payrolls fell by a worse-than-expected 263,000 in September and unemployment rose to 9.8%. But the Institute for Supply Management said on Oct. 5 that in September its nonmanufacturing index edged above 50, to 50.9—a sign that service industries are expanding after 11 straight months of contraction. The ISM manufacturing index came in at 52.6, its second consecutive month of growth. And consumer spending grew by an inflation-adjusted 0.9% in August, said the Bureau of Economic Analysis, though most of that was due to the cash-for-clunkers program, which ended on Aug. 24, so spending could fade in September. Inflation fears, meanwhile, continue to propel gold bugs into fits of ecstasy. The lustrous metal closed at an all-time nominal high of $1,044.20 an ounce on Oct. 7 as the dollar's seven-month slide resumed.

Caveat Endorser

If you get paid to review products online, you'll have to mind your p's and q's a bit more closely. In its first update of endorsement guidelines in 29 years, the Federal Trade Commission said on Oct. 5 that bloggers and other online mavens who get cash or freebies to evaluate goods are essentially endorsers—and should disclose any "material connection" to the seller. The rules also require ads to reflect "the results that consumers can generally expect," ending a loophole that allowed marketers to cite glowing but atypical results. Commercials must disclose links between advertisers and research cited in an ad. The agency warned that celebrities and other endorsers can find themselves on the hook for "false or unsubstantiated" claims, as well as failures to disclose pecuniary ties.

The Pay Czar Takes Aim

Top brass at firms awash in bailout money may have to start pinching pennies. According to The Wall Street Journal on Oct. 6, the Obama Administration's "pay czar," Kenneth Feinberg, will crimp their take-home pay by requiring them to transfer around 50% of their salary to stock they can't touch for several years. By mid-October, Feinberg may be prepared to announce his compensation plan for companies that received the most bailout money—including American International Group (AIG), Bank of America (BAC), and General Motors (GM). The Administration claims the move isn't a punishment but rather an incentive for managers to make smarter decisions, given that their pay will be tied to stock performance. The goal is to end shortsighted moves that can garner robust bonuses but lay the groundwork for another disaster.

Rio Grabs the Gold

Quick, pick the venue with the most sex appeal: Chicago, Madrid, Rio de Janeiro, or Tokyo? Not much of a contest there. Unfurling its theme of "Live your Passion," Rio on Oct. 2 was selected to host the 2016 Olympics. President Luiz Inácio Lula da Silva, joined by soccer legend Pelé, cried in Copenhagen after making a fervent pitch for the Summer Games to be held for the first time in South America. On Copacabana beach, tens of thousands of Brazilians partied in string bikinis and body paint. Now the not-so-sexy work begins: building infrastructure that functions in a city more focused on play. City fathers promised to pour $14.4 billion into stadiums, highways, security, and other improvements. U.S. President Barack Obama, who recently called Lula "the most popular politician on earth," was lambasted in some quarters for expending his own star power in support of Chicago's doomed bid.

Hilton Under Scrutiny

Was Hilton Worldwide hospitable to purloined papers? The Wall Street Journal said on Oct. 7 that a federal grand jury in New York is considering criminal charges against the company and several of its former executives in what could turn out to be a massive case of corporate espionage. In April rival Starwood Hotels & Resorts (HOT) sued Hilton, accusing two ex-Starwood managers of stealing thousands of pages of documents detailing its new hotel concepts. Hilton has fired nearly a dozen staffers in connection with the case. A company spokesperson says it is cooperating fully with investigators.

Comcast's Peacock?

We won't sell it. We wouldn't dream of selling it. Well, O.K., maybe we'll sell it. General Electric (GE), which has insisted for years that it wouldn't part with its NBC Universal studio and TV unit, is negotiating to give up control in a complex deal suggested by cable giant Comcast (CMCSA). Under the proposal, Comcast would own a 51% stake in a newly created private powerhouse that would include its E! Entertainment channel and other assets as well as GE's media properties. Comcast would also give around $6 billion to General Electric, which would then pay French telecom giant Vivendi roughly the same amount for its 20% holding in NBC Universal.

Exxon Fills 'er Up

Sure, $4 billion amounts to a drop in the barrel for Exxon Mobil (XOM), yet its purchase of a 23% stake in an offshore Ghanaian field is its first major acquisition since Exxon snapped up Mobil for $82 billion way back in 1998. What moved the oil behemoth to buy in? The field, named Jubilee, lies in a promising, entirely new oil region, and Exxon must begin to pump up its reserve base after years of tapping existing properties. The deal demonstrates yet again the company's tradition of swooping in to snatch up oil-patch goodies found by risk-taking wildcatters.

From the Deserts of Iraq to the MBA Classroom

U.S. B-schools are looking for a few good men—and women. Dozens of MBA programs have signed up for the Yellow Ribbon program, an initiative created by the Post-9/11 Veterans Educational Assistance Act of 2008, reports BusinessWeek's Alison Damast. Under Yellow Ribbon, which took effect this fall, Washington commits to pay vets a base level of tuition, plus match any financial aid offered by participating schools—and throw in stipends for housing, books, and supplies.

B-schools in particular are hoping the new program will help them draw more veterans, who by some estimates now make up a scant 4% of the MBA population. Among the schools that have signed up are marquee names such as Columbia, Harvard, Stanford, and the University of Pennsylvania's Wharton. Dartmouth's Tuck School of Business is committing $19,233 per student, which along with the federal money covers all of the annual $47,835 tuition.

The Veterans Benefits Administration is still compiling data from all colleges and grad schools on how many veterans have enrolled. But the agency is anticipating a groundswell of interest and forecasts that some 440,000 vets will take advantage of the revamped GI Bill.

See "Why Veterans Are Saluting Business Schools"

Chrysler Cleans House

That didn't take long. Notoriously tough Chrysler CEO Sergio Marchionne wielded the broom on Oct. 5, sweeping out two executives—Dodge President Michael Accavitti and Chrysler brand President Peter Fong—just three months after promoting both. Marchionne was known for shaking up the C-suite after he took over Fiat (FIATY) in 2004. Meanwhile, former Ford (F) executive Shamel Rushwin and past Ford board member Michael Dingman put in a bid for the company's Volvo unit. China's Geely Holding Group is the other bidder.

BofA's Search

Bank of America's (BAC) mostly new directors may barely know each other, but their first task will be a doozy: Picking a new CEO. Ken Lewis, who dropped a bombshell on Sept. 30 by saying he'll step down by yearend, may have to be replaced before that if his legal woes worsen. The two internal contenders are consumer banking head Brian Moynihan and chief risk officer Greg Curl, but the board may opt for a transitional chief executive to give young candidates such as Moynihan more time to ripen. If they go that route, the contenders include ex-CFO Jim Hance and former Merrill Lynch President Greg Fleming.

Pursuing Lehman Funds

The slow unwinding of the Lehman Brothers collapse drags on. Frustrated with the courts, some Lehman hedge fund clients who have had accounts worth nearly $9 billion tied up in London bankruptcy proceedings for more than a year are trying to find a way out on their own. The funds and administrators from PricewaterhouseCoopers said on Oct. 6 that they are seeking the consent of a substantial majority of clients to go ahead with a plan to distribute the available money without court approval. A British judge ruled on Aug. 21 that he did not have jurisdiction to certify such a scheme. The administrators are appealing that decision but don't want to wait patiently for the outcome.

Brocade on the Block

Techdom has seen plenty of M&A lately, though nothing like the frenzy many experts expect as Cisco (CSCO), Hewlett-Packard (HPQ), IBM (IBM), Intel (INTC), Microsoft (MSFT), and Oracle (ORCL) strive to become one-stop providers of cloud computing services. Get set for more: On Oct. 6 word spread that Brocade Communications (BRCD) was seeking buyers. Potential suitors for the networking company, which may fetch $4 billion-plus, include HP and Juniper Networks (JNPR). If Brocade does sell, other giants could be pressured to buy more large, second-tier tech outfits.

E-Cars from Turkey

At this year's Frankfurt auto show, electric cars accounted for much of the electricity—and one of the models was a plug-in version of Renault's Fluence, which will be manufactured in Turkey beginning in 2011. Ankara hopes Renault's investment will lure other automakers to build eco-friendly cars in the country, reports the Nov. 4 edition of BusinessWeek Turkey, helping boost overall auto production from its current level of 1.1 million vehicles per year. But that may prove a hard sell, given that there is no domestic market yet for these pricey machines. Nor are there plans afoot to develop the infrastructure needed to support plug-in vehicles.


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus