Wednesday, December 15, 2010
Where have I been? Busy as all get out. I hope that you all have been well, though.
My morning wish: That when Barack Obama decides he needs the advice of the business "community" (an abuse of the word "community" if there ever was one), he consult somebody other than "top CEOs." Most if not all of these companies have reduced their U.S. headcount in the last two years. Worse, many of these CEOs are too political and too removed from details to explain to the president, with a painful and granular itemization, how his regulatory policies are stifling the animal spirits of American enterprise. Which, of course, most big companies do not have in the first place.
My company has grown its American headcount in each of the last two years. We would have grown it even faster if it were not for the massive incremental regulatory burden of the Obama State. That is a fact. I know, I participated in the decisions. Now, you might say that we needed more regulation. Fine, perhaps we did according to your taste, but do not then argue that activist regulation has had no influence on employment.
"Now, you might say that we needed more regulation. Fine, perhaps we did according to your taste, but do not then argue that activist regulation has had no influence on employment."
I used to work as an Architect. I am now working as a cabinet maker and installer. When there is work. So far, every one of our home remodel clients is upper middle class or rich. President Obama has consistently proposed jacking up the taxes on my possible clients. The California Air Quality Management District has changed the regulations on paint once again, for the upteenth time in 20 years. These policies do not just affect the rich, they affect the $14 dollar an hour employees such as myself.
Obama wants to generate a news cycle about (1) how these companies are sitting on lots of cash, and (2) why we should blame high US unemployment on #1. It's all the fault of the Big Bad CEOs.
So tomorrow we'll first see ledes about trillions of dollars being kept on the sideline. Later tommorrow Keith and Rachel and Chris etc. will amplify how this shows a deliberate Big Company effort to make Obama fail.
From where I sit, they're all part of the Borg.
My father is an upper-mid-level drone in ExxonMobil. He's in charge of making sure that a large natural gas refinery doesn't explode. Thanks to some bad management, they are currently understaffed (a cluster of old hands retired jointly).
Word from above on new hires came down: "We're not hiring anyone until Obama is gone."
The whole company is just treading water now. The only projects being pursued are ones that were planned and budgeted before. They aren't interested in laying pipe for a project and then having the overhead jacked up or their ability to extract taken away (i.e. holding off turned out to be a good decision vis-a-vis the Gulf) or being arm-twisted by the EPA (recall that the EPA has been trying to grossly extend their influence in Texas [where my dad lives] and were told by the Governor and Att. Gen. to go to hell) by an overeager 'regulatory' jackass.
Just another anecdote from another industry.
Here’s the full list for today’s “working group “
Greg Brown, Co-CEO, Motorola, Inc.
John Chambers, Chairman & CEO, Cisco Systems Inc.
Kenneth Chenault, CEO, American Express
Dave Cote, Chairman, President & CEO, Honeywell International Inc
Scott Davis, Chairman & CEO, UPS
John Doerr, Partner, Kleiner Perkins Caufield & Byers
Mark Gallogly, Managing Partner & Co-Founder, Centerbridge Partners
Lew Hay, Chairman & CEO, NextEra Energy
Jeffrey Immelt, Chairman & CEO, General Electric
Ellen Kullman, CEO, DuPont
John Lechleiter, President and CEO, Eli Lilly
Andrew Liveris, President, CEO and Chairman, Dow Chemical
James McNerney, Chairman, President & CEO, Boeing
Indra Nooyi, Chairman & CEO, PepsiCo
Paul Otellini, CEO, Intel
Penny Pritzker, Chairman & CEO, Pritzker Realty Group
Brian Roberts, Chairman & CEO, Comcast
Jim Rogers, Chairman, President & CEO, Duke Energy
Eric Schmidt, Chairman & CEO, Google
Robert Wolf, President & COO, UBS
Why does this remind me of the scene in Godfather 2 where Cuban President Battista passes around the golden telephone?
Penny Pritzker was an early Obama backer in Chicago.
Google’s Schmidt is a big supporter too. Holder has shown him the draft DOJ antitrust charges against Google – they won’t be filed so long as Google plays ball.
Comcast’s Brian Roberts will soon replace GE’s Jeff Immelt as boss of Keith and Rachel and Chris.
Once upon a time, uber-VC firm Kleiner Perkins backed Silicon Valley tech start-ups. Today it’s “long” on China and Green, after having made Al Gore a partner. I couldn’t make that up if I tried.
Following on DF82’s point above, Brazil is going gangbusters with oil drilling – and other things too. So if you’re the head of PepsiCo, where are you to looking to hire and expand?
We would have grown it even faster if it were not for the massive incremental regulatory burden of the Obama State.
Do tell. What regulatory changes has Obama put in place that are precluding you from adding to your headcount?
"What regulatory changes has Obama put in place that are precluding you from adding to your headcount?"
* threatened increase in capital gains tax.
* Increase in health care coverage costs.
* Increase in the minimun wage.
* Increase in the Estate tax.
* a hostile energy policy
* erratic feduciary policy.
* devaluation of the American dollar.
* creation of a massive federal deficit.
* Credit regulations that have removed both banks and potential customers from the market.
I am sure I could come up with more if I pondered...these were just the ones off the top of my head.
Basically, ANON, you seem to support a man who is a clear cut socialist, loves taxation, supports a catastropic credid policy, devalues the buying power of the dollar, reduces discretionary income and supports fairly ridiculous union demands over those of business owners.
Single phrase: BUSINESS DISASTER!
Looking at the 1.1 TRILLION dollar spending fiasco on the floor of the Congress, do you still need any justification for calling these idiots a disaster???
The ball is in your court.
Anon 7:40 - I'll take your question seriously, even though it seems to be a talking point rather than a genuine question.
Any time you raise the costs of an otherwise growing business with taxes or regulation you crowd out new employment. I would have thought that was obvious, but apparently you do not believe it.
Let's start with basic business budgeting. We are a mid-cap public company. Each year, we do our best to forecast our sales for the next year, by product line, and then build up a budget for expenses assuming those sales come in. We solve for a result -- our stockholders expect us to increase our earnings every year a bit faster than revenues. If we do not do that, we have done a worse job than our competitors and they will sell our stock. So the revenues are more or less a given, as are the cost of sales (more or less) and the selling expenses (cost of the sales force) that produce those revenues.
Now, we have more internal demand for new employees than we can support and meet our earnings objectives for the next year. Why? Because people have different opinions about the work we need to do to build earnings power in years beyond next year. It is our job as executives to choose between the many worthy ideas for building future business, and still achieve our earnings objectives for the next year.
Now, new regulation costs money, and it crowds out expenses that would be available to hire more people to add to the profitability of the company over the long run.
There are many examples of new regulation that cost money, depending on the industry. My industry, medical devices, is facing massively higher regulatory and clinical expenses because the Obama FDA has imposed much more onerous requirements than any of its predecessors. Products that used to require mechanical testing now require animal studies, and products that required animal studies now require human clinicals. Certain products are now so expensive to approve in the U.S. (even more so than in exacting countries like, say, Germany or France) that we are no longer moving them forward. In other cases, we hire fewer people because we have to spend so much more on testing and regulatory. And, of course, the longer a product takes the more it costs because of the time value of money. So extra expenses for product approvals have absolutely crowded out new hiring.
Another example: The Obama administration's SEC has imposed terrifically demanding new rules for proxy statements. We estimate that complying with these regulations will cost us an extra $100,000/year at least. That crowds out at least one new job at our company.
There are many similar examples in other industries and in business in general, as other commenters have pointed out.
Then there is uncertainty. Some of our business comes from the expansion of hospitals. That has ground to a halt because nobody knows how the economics of health care finance will pan out once Obamacare kicks in. What hospital director is going to authorize a new expansion until the regs are written?
And so on.
If you're any kind of Business Decision-Maker you look at the current environment as fraught with peril and certain to change. "Not doing anything right now" / "Keeping your powder dry" is often the best answer. Which is why trillions in cash are sitting on corporate balance sheets.
In this environment, employees are too often looked upon as liabilities not as assets.
Extending unemployment into a third year is an example of this. Employers know that they'll ultimately be asked to pick up the tab.
Cutting the employee half of FICA payroll taxes for one year is another. It'll be hard to re-raise this in a year, even though everyone knows that the programs being supported are going broke. So who will be asked to pick up the tab?
I could go on, and on, and on ....
I was wrong about the CEO summit turning vitriolic. Instead Obama picked a friendly / co-opted line-up of CEOs so that he could claim Kumbaya with corporate America. I hope the chicken and fish entrees were worth the schlep to Washington.
We used to borrow 2% of GDP and got 3.5% to 4.0% GDP growth.
Today we're borrowing at a rate of 9% of GDP and hope to get 3.0% GDP growth, even though interest rates are low. If we were truly recovered from the last recession we should have had at least a few quarters with GDP growth over 5.0% (even 8.0%) and some drop in unemployment.
This is unsustainable, and will necessarily get resolved, most likely over the next two years. Until it is, the private sector will remain frozen.