Merger & Acquisition

     Merger and acquisition is big business today.  We constantly hear of businesses and corporations that are bought by or merged with other businesses and corporations.  This seems to be happening with businesses of all sizes.  A teenager may start a lawn mowing business while in school.  With hard work the business grows and has value.  The business is sold to a competitor.  The competitor receives value in several ways.  The customers are the greatest asset.  The used equipment has value, and a competitor is eliminated.  New employees who are trained in the business may come with the acquisition.  New customers are acquired at a cost that is less than other marketing means.

     I occasionally work with business brokers in my consulting business.  Some business brokers work exclusively in merger and acquisition.  They find this to be the most lucrative segment of the business. 

     When a business broker takes a listing, the first place most brokers look for a buyer is among the competitors.  Buying a competitor can be an economical and efficient way to expand.  It is easier for the business broker because they do not have to explain the business to a new buyer that is not familiar with the industry.  The negative for people wanting to buy an existing business for the first time is that many businesses are never offered to the general public. 

     We hear a lot about mergers of major corporations in many industries.  I have mixed emotions about the merger of many major corporations.  Many airline companies have merged, like Northwest being merged into Delta.  Has the change been good or bad?  AT&T now has a goal of acquiring Direct TV.  This could change our communications options.  As leaders in any industry merge, new opportunities appear for new small competitors. 

     I have a big problem with the large mergers in the banking industry, their failures, and then the government bailouts.  I do not agree with the present government philosophy of bailing out companies that are Too Big To Fail.  If a company becomes too big to fail with a merger, that merger should never have been allowed.  We do have anti-trust laws in place to cover this situation. 

     Why do mergers make sense in business?  Mergers make sense financially because duplications can be eliminated.  That means people in many cases.  Competent and hard working employees may lose their jobs due to no fault of their own.  This is not good for the economy.

     Finding another job is not easy.  Self-employment can be a displaced worker’s best option.  I had a client that felt he would be let go after a merger.  We started to look for franchise opportunities while he was still employed.  He found the right opportunity to achieve his goals and waited to be let go.  The week after he received his notice and severance package, he was awarded the franchise, and he was in the next training offered by the franchisor.  I discuss this situation and more in my book, Business Fits; How to find the right business for you!

     Our government could learn a little from merger and acquisition in the private sector.  We have so many agencies and departments duplicating services that it is ridiculous.  Should we have a 50% Merger and Elimination at the federal level?  This may sound a little extreme, but I would be willing to bet most people would never notice the difference except for less government control, less taxes, and less government debt.

     Am I just wishing and dreaming again?

Will Rogers

     During a visit with my brother in Tulsa, we made a day trip to the Will Rogers Memorial Museum in Claremore, Oklahoma.  I had been there once before fifty-eight years ago when I was eleven. 

     Will Rogers was born November 4, 1879 in the Oklahoma Cherokee Nation by Claremore, Oklahoma. He was named Colonel William Penn Adair Rogers.  I see why he went by Will.  Will was proud of the fact he was 9/32 Cherokee.  Will grew up as a cowboy on the Okalahoma prairie.  Will died in a single engine plane crash by Point Barrow, Alaska on August 15, 1935.

     Will Rogers was one of America’s most popular entertainers of his time.  He was sometimes called the “Cowboy Philosopher.”  He was an entertainer and a humorist.  He was a motion picture star (71 films), radio personality, a syndicated newspaper columnist, and the author of six books and 4,000 articles. 

     Will experienced the roaring twenties and great depression in this country.  He was widely traveled and read several newspapers every day.  He was very interested in politics, but never ran for elected office. 

     Will first gained notoriety in the Ziegreld Follies doing rope tricks and making jokes about what he had read in the newspapers.   “I never met a man I didn’t like,” is one of Will most popular quotes and probably one of the reasons for his popularity. 

     Will loved to make fun of politicians and it was often not complimentary.  “A politician is just like a pickpocket.  It’s almost impossible to get one to reform.”  Today we still have politicians putting getting reelected before the good of the country in many cases.

     “If you ever injected truth into politics you have no politics.”  How many times do we hear lies, cover-ups, and untrue campaign ads that are considered okay because “It’s just politics.” 

     I love and agree with this one.  “Most people and actors appearing on stage have some writer to write their material.  Congress is good enough for me.  They have been writing my material for years.”  And another similar one is; “I don’t make jokes.  I just watch the government and report the facts.”  I have said that Saturday Night Live can’t compete with the news.

     “Be a politician – No training necessary.”  We seem to have been taking this to an extreme level. 

     “Once a man holds public office, he is absolutely no good for honest work”.  Not a real compliment. 

     “We cuss lawmakers, but I notice we’re always perfectly willing to share in any of the sums of money that they might distribute.”  And it is such a good way to buy votes with taxpayer money.

     We have to remember that Progressives were just getting started in the 1920s, when Will said; “What this country needs is more working men and fewer politicians.”  He obviously feared big government then.  What would he think today?

      “This country has gotten where it is in spite of politics, not by the aid of it.”  Sounds like Ronald Reagan’s, “Government is not the solution to our problems; government is the problem.”  When will we learn? 

     Politics has not changed a lot, but one thing that has changed is Will’s statement; “I am not a member of any organized party – I am a Democrat.”  This is certainly not true today.  The Democrats are highly organized and have government-funded organizations to recruit Democrat voters. Democrats support other Democrats regardless of incompetence, corruption, and cover-ups.  The Republicans, on the other hand, are fragmented with conservatives, moderates, libertarians, constitutionalists, and the tea party.  They can’t seem to agree on anything.  I am surprised they can ever win an election.

     Will Rogers made fun of both Democrats and Republicans.  “If by some divine act of providence we could get rid of both parties and hire some good men, like any other good business does, that would be sitting pretty.”  This is still true today.

     “A flock of Democrats will replace a mess of Republicans … it won’t mean a thing.  They will go in like all the rest of ‘em.  Go in on promises and come out on alibis.”  Sound familiar?

      Will described the Democratic Party as representing the worker and the Republican Party as representing the rich.  This was the perception of the time and may have been true at that time.  It is certainly not true today. 

     The Democrats do attempt to buy the welfare vote and do it quite well.  The Democrats also seem to control the lame stream media for some reason, which was not the case in Will’s life.  Today the super rich and major corporations buy and control as many or more Democratic politicians as Republican politicians.  Consequently, the Republican Party is not the party of the rich anymore, and, with the exception of unions, the Democratic Party is certainly not the party of the workingman any more.

     My concern is that neither political party seems to really represent the middle income working American, the small businessperson, or the entrepreneur.  These are the people that made this country great.  Are we trying to eliminate them?  

Constitutional Convention

     Will we have a constitutional convention?  The last constitutional convention was held in 1787.  This convention was called to amend the Articles of Confederation, but instead wrote the Constitution we have today. 

     Amending the Constitution is covered in Article V of the Constitution as follows:

The Congress, whenever two thirds of both houses shall deem it necessary, shall propose amendments to this Constitution, or, on the application of the legislatures of two thirds of the several states, shall call a convention for proposing amendments, which in either case, shall be valid to all intents and purposes, also as part of this Constitution, when ratified by the legislatures of three fourths of the several states, or by the conventions in three fourths thereof, as the one or the other mode of ratification proposed by the Congress; provided that no amendment which man be made prior to the year one thousand eight hundred and eight shall in any manner affect the first and fourth clauses in the ninth section of the first article; and that no state, without its consent, shall be deprived of its equal suffrage in the Senate.

     The 27^th Amendment is the last amendment to the Constitution. It concerns congressional pay increases, and was actually one of the original amendments proposed in 1789.  It took over 200 years for the states to ratify the amendment.  The 26^th amendment, changing the voting age to 18, was proposed 43 years ago. 

   All amendments to our Constitution have been proposed and passed by a two-thirds vote in both houses of Congress and then ratified by three-fourths of the States, but Article V of the Constitution clearly states that the states can also initiate an amendment by calling for a constitutional convention. 

     In March of 2014 Michigan lawmakers voted to call for a constitutional convention to demand a balanced budget amendment to the U.S. constitution.  Michigan was the 34^th state to call for a federal balanced budget amendment.  That is the two-thirds majority needed to call a constitutional convention. 

     This has never happened in the history of this country and I would think it is big news, but have you heard anything about it by the media?  It is clear that the political elite does not want a balanced budget or a constitutional convention.  The lame steam media is certainly not giving it any coverage.  I have not even heard anything on Fox news, but I may have missed it.

     Progressives are questioning if Michigan is actually the 34^th state to call for a constitutional convention as the call for an amendment from some states may be decades old, or may have been recalled.  Some scholars say the valid number may be as low as 18 states. 

     The time factor should not be a consideration as it took over 200 years for three-fourths of the states to ratify the 27^th Amendment.  Another question is if a state can legally rescind the call for a convention once it is made.   I am not sure of this one, but I hope the states in question confirm their demand for a federal balanced budget and more states follow.

     I understand why the career politician and political elite don’t want to be forced to a balanced budget.  Our present government doesn’t appear capable of passing a budget, let alone balancing a budget.  I am convinced a balanced budget amendment is long overdue in order to control the growth of government, government spending, and government debt.  Government debt will increase more during President Obama’s term than during the previous 43 presidents’ terms.

     Maybe the threat to call a constitutional convention will motivate Congress and the President to act in a fiscally responsible manner. 

     Or is that just wishful thinking on my part?

Performance Bonuses

     Performance bonuses in the workplace sound like a good thing and can be, but be careful that they are not abused or manipulated.  Performance bonuses can be a great motivator, but remember compensation is only one motivator. 

     When I was a plant manager for a recreational vehicle company, I needed double production in a very short time period.  I initiated a bonus plan, paid weekly, to all hourly employees.  This performance bonus worked very well.  The hourly employees, management, and corporate were all very happy with the results.  When I first mentioned the plan, corporate did not recommend implementation, but after it worked so well, I had to go to other company plants to implement the system. 

     A performance bonus must be realistic and meet the needs of the employees affected.  Don’t make the mistake of thinking the only factor is financial compensation.  In the above-mentioned situation, the plant was running 10 to 12 hour days six days a week and I wanted to double production.  I realized that most of the hourly employees liked the overtime, but their free time was even more important to them.  The plan offered an opportunity of making almost the same money in a 40-hour week with no Saturdays.  It worked.  The employees made it work. 

     The quotas and goals for any performance bonus must be realistic or it is worthless.  I know of retail business that sells a high-dollar product, and the sales staff is paid a salary plus commission.  In order to earn any commission, the store and the individual must both reach the goals for the month.  An individual can achieve their individual goal, but if the store does not reach its goal, no commission is paid. 

     I know of one store that was very successful and had some excellent sales people.  Every year the goals were raised an optimistic 30% or more. Then an additional store was opened in a neighboring town that was accounting for 60% of the store’s business, and the goals were not adjusted.  There was no way for the store to now reach its goal, and no way for the sales personnel to earn any commission. 

     The basic plan was okay, but with unrealistic numbers, it was terrible management.  As a result, the best sales people left for other opportunities.  This is a great example of top management not having any idea of what is happening in the field. 

     Another big problem in business is when upper management sets the criteria for their own bonuses.  This leads to manipulation of the books and short-term management decisions that increase bonuses, but are bad for the company long-term.  We have seen many examples of this in recent years in the financial industry.  The government and the taxpayer had to bail out many companies and upper management still paid themselves large bonuses in many cases.

     Performance bonuses in the public sector can also be good or be abused.  I support education, and I believe in rewarding good teachers.  I know of one situation were federal funds were given to the states to reward excellence in teaching.  In some states, teacher’s unions decided to distribute these funds to all teachers based on seniority.  Seniority does not necessarily mean excellence.  These government funds did not achieve their objective. 

     The Veterans Administration and VA Health Care hospitals have been getting some publicity lately because of hospital administrators allegedly delaying or denying health care to veterans.  Computerized patient records were modified or deleted in order to improve management performance ratings and bonuses.  As a result, veterans did not receive needed care and some actually died.   This is more than bad management in my opinion and those people involved should face criminal charges. 

     I am not implying this problem is widespread in the VA Health Care system.  I have used the VA for health care and have personally found the service and care to be excellent. 

     Government abuse of performance bonuses is not restricted to the VA.  The IRS is another example.  We know individuals and groups have been targeted for political reasons.  The people responsible not only go unpunished, but are given bonuses and even promoted. 

     If you implement a performance bonus in your business, make sure the criteria are realistic and the plan achieves the intended objective.  In the public sector, the political elite does not want us to know the facts.  We must become informed and correct the problem when we vote. 

Levels of Government

     I recently agreed to run for the office of Barron County Supervisor where I live in Wisconsin, and was elected to that position.  I attended an introductory meeting and my first monthly board meeting last week.  I think it will be an interesting experience and I hope to serve the people well. 

     In Wisconsin there are several levels of government.  There are townships, villages, cities, and county governments.  Most of these elected officials are non-partisan and run as independents except for the larger cities, which can be very partisan.  The state is the next level of government and finally the federal government. 

     There is very little campaigning or fund raising for the lower levels of government.  Compensation for local level politicians is minimal.  Many of these elected representatives serve primarily as a public service and it is not a full-time job.  This is the way our founding fathers envisioned elected officials.  I am a big supporter of local government where the people have a strong voice. 

     At the county level there are several elected positions that are full-time paid positions.  These individuals may run as Democrats, Republicans or Independents, but I think or hope they are elected more for their job qualifications than for their political party affiliation.  There will always be some voters that vote a straight party ticket, which I personally disagree with.   I try to vote for the most qualified person for the job.

     At the state level party politics become more of a factor.  The Assembly, Senate and Governor are usually heated races.  There are compromises, earmarks, and back room deals at the state level, but I not as many as at the federal level.  Also bills that are shorter, simpler, and sometimes even read by the legislators.  I believe in short, simple, direct, and understandable legislation. 

     It is much harder for Big Money to buy and control politics in fifty states than in one federal government.  I am a big supporter of states’ rights as outlined by the Constitution and our founding fathers.  State governments will make mistakes, but these mistakes can be corrected without affecting the entire country, unlike bad legislation or administration at the federal level.

     Our federal government is out of control in my opinion.  It continues to grow, spend money, and accumulate debt.  A simple bill is expanded and compromised with special exceptions and considerations until no one knows what it says even if they did read it, which seems to seldom happen.  The only people benefiting from this behemoth federal government are the career politicians and the very rich who are politically connected. 

     A small number of political elite has taken control of our country.  The independent working class and the entrepreneur have lost control.  The opportunities we enjoyed in this great country may not exist for future generations. 

     When are we going to take our country back?  Will it be in time?

The Federal Reserve

     Our Federal Reserve System is also referred to as the Federal Reserve or Fed, and is one of the most confusing and misunderstood things about our federal government.  Some things are almost unbelievable.  Do we need to make some changes?

     The Federal Reserve Act was passed on December 23, 1913 creating the Federal Reserve.  It was rushed through Congress when many Representatives and Senators were gone for the holidays.  Woodrow Wilson was President.  Why does this not surprise me?

     The Federal Reserve was to act as the central banking system for the country, government, and private banks with the objective of providing financial stability for the country.  This action was prompted by several financial panics including a severe one in 1907.  The Act specifically stated three objectives.  They were: maximum employment, stabilize prices, and moderate long-term interest rates.  The Fed clearly did not achieve its objective and changes were made after the Great Depression.  The powers of the Fed have continually been expanded including the power to regulate banking institutions.  The Federal Reserve is a compromise between a government agency and a private corporation.

     The Federal Reserve structure is a Board of Governors, a Federal Open Market committee (FOMC), and twelve regional Federal Reserve Banks.  The Board of Governors consists of seven Commissioners appointed by the President and confirmed by the Senate.  The FOMC is made up of the seven Board of Governor Commissioners and the twelve regional bank presidents.  Only five of the regional bank presidents hold a vote.  The New York Fed President always has a vote.  The other four votes rotate among the other eleven regional bank presidents with one-year terms. 

The face of the Federal Reserve is the Board of Governors Chairman.  The current chairman is Janet Yellen.

      As the central bank for the country, the Federal Reserve loans money to the government, the twelve regional banks, and other organizations like Fannie Mae and Freddie Mac.  The Fed also makes loans to prevent catastrophic bankruptcies.  The interest rate charged by the Federal Reserve is normally referred to as the Prime Rate. 

     The government has given the Federal Reserve the authority to expand or contract the nation’s money supply.  They can print money.  Actually the paper currency and coins are produced by the U.S. Treasury Department and sold to the Federal Reserve.  The price for all paper currency is the actual manufacturing cost and coins are sold at face value.  

     The twelve Federal Reserve banks are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.  There are also 24 Federal Reserve branch banks.  All profits of the Federal Reserve are transferred to the U.S. Treasury after a statutory dividend of 6% is paid on member banks’ capital investment. 

     The Federal Reserve does make an annual report to the House of Representatives and is subject to audit by the U.S. Government Accountability Office, but is not regulated by or required to file a report with the Securities and Exchange Commission (SEC).  Federal Reserve capital investors are not public knowledge.  The Federal Reserve plays a huge role in the economic well being of this country and some people feel it should be more transparent and/or be subject to regulation by the SEC.   

      The Federal Reserve should not be confused with the Federal Home Loan Banks, which also have twelve banks located in Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, Seattle, and Topeka.  Federal Home Loan Banks (FHLBanks) make loans to their member institutions to support housing and economic development and are owned by their members.  Unlike Fannie Mae and Freddie Mac, the Federal Home Loan Banks’ business is self-capitalizing in nature, requiring that their members invest in the capital stock of the FHLBanks based on a percentage of outstanding indebtedness to any particular member.  Moreover, the stock of the FHLBanks is not publicly traded, and therefore the FHLBanks are not subject to the same earnings pressures that in part led to the conservatorships of Fannie and Freddie.  

       

Nepotism and Cronyism

Usually people hired for a job in the private sector are qualified for that job. One exception is nepotism where favor is granted to relatives.  We have all seen examples of this.  How many times have we seen thriving businesses fail after being turned over to the founder’s children?

Nepotism is also prevalent in the public sector.  Many politicians hire their family in spite of the fact they have zero qualifications.  Politicians often appoint family to bureaucratic positions.  This is very frustrating to qualified public servants that are trying to do the job.  When the political elite hire or appoint unqualified people, they are wasting our tax dollars and more importantly, it is not in the best interest of the people they serve, or the future of the country.

        Another problem is Cronyism, which is the practice of hiring or doing business with friends.  Cronyism is a factor in the private sector when contracts or business are given to family or friends when there are better options.  As a new car dealer in a small town, I found it challenging to take business from long established competitors that were well known in the area.    

        Cronyism in the public sector is even more dangerous.  Many contracts, loans, grants, and political positions are given to companies and individuals supporting and donating to campaigns.  This crony capitalism between corporate leaders and the political elite threatens the entrepreneurial spirit that made this country great.  More recently, many recipients of stimulus money were large campaign donors.  The return-on-investment for these donations was extremely good in many cases, but some are criminal in my opinion.  Big government controlling the economy results in short-term benefits for the political elite and politically connected, but hurts the country for future generations.

In the public sector, problems with nepotism and cronyism probably date back to the founding of the country.   Ulysses S. Grant is a good example.  He may have been an honest man, a great General and a good President, but nepotism and cronyism filled his Presidency with corruption.

I am an advocate for personal freedom, the capitalist system, and the entrepreneur.  That is what made this country great, not big government.  The problems with nepotism and cronyism in both the private and public sector are not new. 

In the private sector, we must avoid these situations and not make these mistakes as a manager.  In the public sector, we can control nepotism and cronyism by electing individuals that are qualified for the job and will hire and appoint other qualified individuals.  Do your homework, get the facts and vote accordingly.