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Volume 14, Number 6 July/August 2005
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Snap Judgments
By Heather Brewer
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CEO is out, yes, but stock goes up
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Booted CEOs now need not worry about the door hitting
them on the way out, but should instead steer clear of
soaring stock prices. It seems that investors —
rather than fretting over the departure of the ship's
captain — are rejoicing in hoisting their man
overboard and driving stock prices way up even as the
CEO's personal stock goes down.
For example, Smart Money reports that when CEO
Donald Carty left AMR, the company's stock shot up 6.3
percent the next day and was up 218 percent one year
later. At Motorola, Christopher Galvin's exit inspired
an 8.7 percent stock jump the next day, with the price
up 53.3 percent a year later.
Ex-execs should start looking at their severance
packages to see if there's any of that stock in their
basket. Parting is indeed such sweet sorrow.
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In-house positions lure minorities
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In-house corporate counsel positions have perks that
appeal to legal eagles looking for a little more balance
than a law firm offers. But, interestingly, the bennies
of big biz are especially effective at luring minority
lawyers into the game, according to Diversity &
the Bar magazine.
A study by the Association of Corporate Counsel found
that in 1998, minorities made up 9 percent of in-house
counsel — a 4 percent jump from the number five
years prior. That figure jumped again to 10 percent in
2000 and to 12.5 in 2001.
Despite the growing numbers, minorities still face
obstacles in climbing the ladder, the magazine reports,
since only 4.3 percent of Fortune 1000 general counsels
are minorities.
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The Chinese are here: Good
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American colonists long ago heard the cry, "The
British are coming!" But American economists today
are hearing in a new book the more modern cry of,
"The Chinese are here!"
Ted Fishman takes on the economic rise of the Asian
powerhouse in his 342-page tome, China, Inc.: How the
Rise of the Next Superpower Challenges America and the
World, the Chicago Tribune reports.
Among the topics the just-the-facts-ma'am book takes on
are China's power as a market, its political clout and
its ability to make wage demands.
Fishman specifically cites how China's influence knocked
DVD player prices way down from their initial $1,000
price tag.
"If the average car dropped at [the] rate DVD
players have, a Porsche 911 would now cost $1,500,"
Fishman writes.
So, instead of a rash of redcoats, it's an onslaught of
affordable red hot rods that may play the pivotal role
in this economic rise heard 'round the world.
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Complex jobs still needed in U.S.
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High rates of outsourcing have been a source of high
anxiety for many American business prognosticators who
see the initial exporting of jobs as a sign that more
intellectually demanding positions will soon be shipped
off as well.
But not so, says former Clinton Labor Secretary Robert
Reich in the Harvard Business Review.
Reich contends that while more complex jobs —
like X-ray diagnostics and software programming —
have been heading overseas, the number of those jobs is
still on the rise in the United States. And, Reich says,
those numbers are likely to continue rising in the
coming decade.
American customers' love for high-end products and high-
end services, Reich says, has been fueling this home-
grown job increase and will keep the demand for local
high-end jobs strong in the future.
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Online personality tests test applicants
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Put the blue power suit away with the mothballs and dig
out that Psychology 101 textbook. Today's job
interviewers aren't looking for the right answers;
they're trying to get the real answers through
sophisticated computer-based personality tests.
A recent round of applicant screenings at Universal
Studios Hollywood, for example, had prospective workers
saying all the right things while interviewers still
said, "No," the Washington Post
reports. The reason for nixing the newbies? Their
answers to a 50-minute online test that had them respond
to statements like: "It's maddening when the court
lets guilty criminals go free."
Sure it's something of a leading statement, but,
according to experts, the answers lead them to an
understanding of the applicant's ability to make it in
customer service.
In fact, the Post reports that 2,500 U.S.
companies — including Target and Nieman Marcus
— currently use some version of a personality test
for hiring, although some people say the tests aren't a
good tactic.
"You are doing a disservice to the complexity of
human individuality," says Northwestern professor
Dan P. McAdams.
However, out in California, execs at Universal Studios
have a sunnier perspective. "In almost every case,
the results of the test are what we see in the
interviews," says Universal's Nathan Giles.
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Should ex-execs just plead guilty?
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While being "out of the loop" worked for
George Bush the senior and the definition of
"is" defined Bill Clinton's defense, CEOs are
finding creative defenses aren't doing them justice.
WorldCom's Bernard Ebbers' failed "I didn't
know" defense is, according to a recent Los
Angeles Times article, bad news for ex-execs
awaiting their day in court.
Enron's Kenneth Lay and HealthSouth Corp.'s Richard
Scrushy were among those expected to be lining up new
legal strategies. Although Scrushy, in the end, took a
chance with the ignorance-is-innocence tack, he didn't
take a chance on the stand.
Duke law professor Erwin Chemerinsky says the verdict is
also a green light for prosecutors. "I think it
puts more pressure on white-collar defendant CEOs to
consider guilty pleas," Chemerinsky says.
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Boom times ahead for emerging markets?
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You still don't want to shell out any money for that
elusive bridge for sale in Brooklyn, but according to
some experts, emerging markets may have their own joke
status behind them and now be a serious option for
investors.
According to Smart Money magazine, emerging
markets — such as Asia, Eastern Europe and Latin
America — have learned from the crises and
quagmires of the past 10 years and are bracing for boom
times.
In fact, stocks from so-called developing nations
yielded a 55 percent return in 2003 and 25 percent last
year. Even bonds have brought in high yields for the
past three years.
However, the folks at Smart Money point out that
the volatile nature of emerging markets may hold the
possibility of rich returns, but its intricacies are
best understood by investment companies who can keep a
close eye on all factors.
"With a smart manager, you could see 10 or 11
percent [annual] returns in the next five to 10
years," says Ben Inker of Boston's Gran-tham, Mayo,
VanOtterloo.
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Boards are finding more backbone
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It used to be just business, but now it's personal.
Baffled big guys from various companies are finding the
arm of business law reaches into their pockets and bank
accounts when things go bad on their watch, according to
U.S. News & World Report.
In the Enron case, for example, 10 former directors had
to fork over a total of $13 million from their own
coffers when they were held personally liable for the
company's fiscal implosion.
As a result, boards are biting back, taking on CEOs and
questioning bottom lines to keep their own assets
covered.
"Inside the boardroom, directors are asserting
themselves in ways they didn't 10 years ago and that
includes standing up to the CEO," says corporate
governance expert Charles Elson.
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