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Selling Sino-Forest Short
Until recently, Sino-Forest Corp. was Canada's largest publicly traded forestry firm (worth about $6 billion). Sino-Forest used subsidiaries in the British Virgin Islands to buy trees in China. The subsidiaries held the trees for a few years and then sold them to customers called "authorized intermediaries" (AIs). The suppliers of the trees and the buyers were supposedly distinct entities, but there was a dispute about whether this was really the case. Sino-Forest was reluctant to disclose who the AIs were, claiming that doing so would harm its competitive position.
In 2011, a company called Muddy Waters (a so-called short seller) released a report which questioned whether Sino-Forest actually owned the timber assets it claimed, and whether it was actually receiving the revenue it claimed. The report had an immediate impact. On June 1, 2011, Sino-Forest shares were trading for $18.21 per share, but by June 21, they were trading for just $1.29 per share. In August 2011, the Ontario Securities Commission (OSC) halted trading in the stock of Sino-Forest. Allen Chan, the co-founder and CEO of Sino-Forest (and several other executives) resigned shortly thereafter. Sino-Forest then filed a $4 billion lawsuit against Muddy Waters.
The incentives for short sellers like Muddy Waters are very high if they can demonstrate that there are problems in a company (or if they can convince investors that there might be problems). For example, if you had borrowed 1,000 shares of Sino-Forest from your broker on June 1, 2011 and sold them on that day, you would have received $18,210 (1,000 x $18.21). You could then have purchased 1,000 replacement shares on June 21 for just $1,290.00 (1,000 x $1.29). Your profit would have been $16,920 ($18,210 minus $1,290).
After the allegations of fraud surfaced, an independent committee was formed to look into the matter. After spending $50 million gathering information, the committee announced on January 31, 2012 that it could not figure out what was going on at Sino-Forest. Ernst & Young, the company's auditor, resigned in 2012, saying that Sino-Forest had not satisfactorily addressed outstanding issues with regard to its 2011 financial statements. Without an auditor, Sino-Forest cannot generate official financial statements.
On March 31, 2012, Sino-Forest filed for bankruptcy protection under the Companies' Creditors Arrangement Act (CCAA). Lawyers who wanted to file a $9 billion class action lawsuit against the company, its auditors, and bankers opposed this move because bankruptcy protection does not allow litigation against these other groups.
In May 2012, the OSC released a report charging that the top executives of Sino-Forest had perpetrated a major fraud on investors by falsely inflating the company's assets and revenues, and by falsifying evidence regarding its ownership of timber holdings. The OSC also announced an investigation of other "gatekeepers" who were important to Sino-Forest (auditors, lawyers, and bankers who helped the company raise money). These gatekeepers all were paid fees, but none of them detected the alleged fraud.
Even if the accused executives are found guilty, it is not clear that they will be held accountable. Allen Chan, for example, does not live in Canada. The OSC can ban foreigners from serving as company directors or officers, but it has no way to collect fines that might be assessed. The RCMP may lay criminal charges, but extradition is not guaranteed either.
Questions for Discussion
1. Assess this situation using the four ethical norms that are discussed in your text (assume for a moment that the OSC allegations are true). What conclusions do you reach about the level of ethics that was evident in this situation?
2. Consider the following statement: Short selling should be banned because it creates instability in the price of a company's stock. Do you agree or disagree with the statement. Defend your reasoning.
Sources: Jeff Gray, "Lawsuits Inc.," The Globe and Mail, June 27, 2012, B7; Barrie McKenna, "Sino-Forest Case Cries out for Justice," The Globe and Mail, May 28, 2012, B1; Andy Hoffman, "OSC Alleges Fraud at Sino-Forest," The Globe and Mail, May 23, 2012, B1; Andy Hoffman, "Sino-Forest Brass Departs in Advance of Charges," The Globe and Mail, April 18, 2012, B6; Jeff Gray, "Heavyweight Shareholders Join Sino-Forest fight," The Globe and Mail, April 14, 2012, B2; Andy Hoffman, "Sino-Forest Auditor Ernst & Young Resigns," The Globe and Mail, April 6, 2012, B3; Andy Hoffman, "Probe Fails to Solve Sino-Forest Mystery," The Globe and Mail, February 2, 2012, B1; Terence Corcoran, "Sino Kiss-Off Comes Too Late; Woes Take Down Forest of Global Reputations," National Post, June 22, 2011, FP1; Peter Koven, "Paulson Dumps Sino Stake; Shares Down 14.4% Before Hedge Fund's Sale Revealed," National Post, June 21, 2011, FP1; Peter Koven, "Block Questions Sino-Forest Documents; Shares Slip 4.5%; Did Related Firm Sell Sino-Forest Timber Rights?" National Post, June 18, 2011, FP4; Peter Koven and David Pett, "Sino Call Fails to Convince; Stock Plunges further 32% as CEO Tries to Explain Arcane Business Strategy," National Post, June 15, 2011, FP1; Jonathan Chevreau, "Investor ED Flags; Due Diligence is Critical, As Tale of Sino-Forest Shows," National Post, June 11, 2011, FP9; David Pett and John Shmuel, "Muddy Waters Research 'Crap'; Dundee Blasts Attacker of Sino-Forest," National Post, June 8, 2011, FP1; David Pett and John Shmuel, "Sino-Forest Falls 20.6% After Short Seller's Report; Muddy Waters," National Post, June 3, 2011, FP7.
What's Happening to Manufacturing in Canada?
Between 1981 and 2010, factory output in Canada increased 59 percent, but factory employment fell 16 percent. Over 500,000 manufacturing jobs have vanished, and in 2011 factory employment in Canada dropped to its lowest level on record. Manufacturing now accounts for just 10 percent of the jobs in Canada (down from 16 percent in 2000). Manufacturing was the biggest sector in the Canadian economy from 1976 to 1990, but it now ranks third.
The difficulties in manufacturing are most obvious in the automobile business. In the 1990s, the auto industry had an annual trade surplus of $20 billion, but now it has an annual deficit of $12 billion. In 2000, 198,000 people worked in the auto industry, but by the end of 2011, the number was down to 131,000. Ontario is now the world's highest-cost place to make automobiles. Canada produces 2 million cars now compared to 3 million in 2000. Many auto parts plants have also disappeared. These losses are significant because one well-paying job at an auto plant supports another 7.5 jobs elsewhere.
The Canadian Auto Workers union (CAW) is trying very hard to get car companies to make new investments in Canada. The CAW wants the federal government to develop a national automotive policy to help Canadian automakers cope with threats from lower-cost areas like the southern U.S. The CAW also wants the federal government to (1) create a Canadian-owned auto maker, (2) stop free trade talks with S. Korea, Japan, and the EU, and (3) put stiff tariffs on auto makers that sell cars in Canada but don't actually make any cars here. The Canadian Automotive Partnership Council—a joint industry-government-union group—has been working on such a policy for ten years, but no policy has yet been developed.
There are three key factors that explain the decline of manufacturing generally in Canada (not just automobile manufacturing). First, the application of new technology and automation has allowed companies to increase output while employing fewer workers. For example, Maple Leaf Foods announced in 2012 that it would close five old food processing factories that were inefficient and could not compete with companies in the U.S. The old plants will be replaced with one new highly efficient factory in Hamilton that will produce more than the five old plants combined. But, about 1,500 jobs will be lost in the process. One reason for this change is the need for the company to improve its financial performance. In 2010, for example, Maple Leaf earned nearly $50 million in pre-tax profits, but that represented only 1 cent on each dollar of sales.
Second, the Canadian dollar has increased sharply against the U.S. dollar during the past decade, rising from $0.62 in 2001 to parity in 2012. This has increased the cost of Canadian-made products in foreign markets, and has led to declining export sales.
Third, in addition to foreign competition being intense, other countries are very aggressive in trying to attract manufacturing plants. Some U.S. states, for example, have been giving companies millions of dollars in incentives in order to encourage them to open manufacturing facilities in their area. Volkswagen recently received more than $500 million from the state of Tennessee, and Mexico has been successful in convincing both Honda and Nissan to build new plants there (because of relatively low wage rates).
All of these developments sound pretty ominous, but there are some hopeful signs. Contrary to widely-held perceptions, Canadians don't just drill for oil and flip burgers. While manufacturing may be facing serious problems in eastern Canada, it is booming in western Canada. Consider the Nisku industrial complex south of Edmonton, which is the second-biggest energy park in North America (the biggest one is in Houston, Texas). Pipes are the building blocks of refineries, petrochemical plants, and oil sand extraction sites, and they are fitted together at Nisku into the necessary configurations. Manufacturing here is not mass production; rather, it is engineered-to-order modules made one at a time. The oil sands boom has drastically increased the number of jobs available for welders, pipefitters, and electricians. In Edmonton, manufacturing jobs are up 50 percent since the recession ended.
Another encouraging development can be seen in Ottawa. When the tech bubbler burst in 2000, several big companies sharply reduced their payrolls. For example, employment at JDS dropped from 10,000 in 2001 to 2,500 in 2002. Nortel employed 17,000 people in 2000, but by 2009, there were only 3,000. That's the bad news. The good news is that many new companies have started up. In 2010, there were 1,944 tech companies in Ottawa, which was almost double the number a decade earlier. These are smaller, more entrepreneurial companies with highly skilled work forces that may not even own their own factories. Instead, they contract out most activities except their new product ideas and the building of prototypes. A company called eSight Corp. is typical. It makes glasses containing electronic optics that allow users to adjust the brightness and contrast of what they are looking at, and to zoom in and out and for a better view. The actual production of the glasses is done in an Ottawa factory that has expertise in assembling high-end electronics products.
Questions for Discussion
1. Explain in your own words the developments during the last decade that have resulted in problems in Canadian manufacturing.
2. Should the Canadian government intervene more aggressively in the automobile industry to maintain employment there? Explain your reasoning.
Sources: Greg Keenan, "GM to Slash Oshawa Line, Move Production to Tennessee," The Globe and Mail, June 2, 2012, B4; Greg Keenan, "Stage Set for Standoff with Unions, Auto Makers," The Globe and Mail, April 17, 2012, B1; Barrie McKenna, "Manufacturing Hard Hit, But It's Nowhere Near Dead," The Globe and Mail, March 19, 2012, B1; Gordon Pitts, "In Alberta, Oil Sands Fuel a Factory Boom," The Globe and Mail, March 6, 2012, B1; Greg Keenan, "Ten Years of High Loonie Takes Big Toll on Country's Factories," The Globe and Mail, March 2, 2012, B1; Greg Keenan, "Indiana Beckons Factories Squeezed by Higher Costs," The Globe and Mail, February 16, 2012, B1; Tavia Grant and Greg Keenan, "Factory Employment Hits a 35-Year Low as More Plants Close," The Globe and Mail, November 5, 2011, B1; Jacquie McNish, "Maple Leaf's Big Move," The Globe and Mail, October 20, 2011, B1; Kevin Carmichael, "From a Burst Bubble, a New Brand of Manufacturing Emerges in Ottawa," The Globe and Mail, June 11, 2011, B11.
The Aftermath of the BP Oil Spill
In 2010, an explosion and fire at BP's Deepwater oil drilling rig in the Gulf of Mexico killed 11 workers and spewed millions of barrels of oil into the water. In the ensuing weeks, media coverage was relentless, and there was a great deal of speculation about (1) the impact of the spill on future oil production in the Gulf of Mexico, (2) the amount of ecological damage that had been sustained as a result of the spill, and (3) the magnitude of lawsuits which were sure to follow. Here's an update on what has happened since the spill.
Oil Production in the Gulf of Mexico
A one-year moratorium on drilling was imposed after the disaster, but drilling for oil in the deep waters of the Gulf of Mexico has rebounded, and total oil production will soon surpass the level that was achieved before the spill. Forty drilling rigs are operating in 2012, compared to 25 during 2011, and the U.S. Energy Department predicts that production will rise from 1.3 million barrels per day in 2011 to 2 million barrels per day in 2020. In spite of new oil spills off the coasts of China and Brazil, deep water drilling has also begun in East Africa, Brazil, and the eastern Mediterranean. The reason that deep water drilling continues is simple: there is continuing pressure to find more oil to meet world demand.
Ecological Damage as a Result of the Oil Spill
Immediately after the oil spill, there was obvious evidence that ecological damage had occurred. For example, about 7,000 sea birds died, as well as 700 sea turtles and 100 dolphins (although in some cases it was not clear that the oil spill was the cause of death). The general view was that the spill was "catastrophic." But before long, evidence began to emerge that countered that view. In 2011, a study was published in the prestigious journal Science which concluded that oil-eating microbes in the ocean had consumed most of the oil within five months of the spill. There was disbelief among some members of the scientific community about the results of the study, and they questioned whether microbes could really consume that much oil. But in January 2012, a study by the National Academy of Sciences also reported that much of the spilled oil had disappeared. As well, an assessment team that toured low-lying marshes in 2011 found little trace of the oil that had earlier washed up on the shore. The team observed mollusks clinging to new-growth marsh grass and wading birds that were nesting. Beaches were clean and packed with college students on spring break. A marine biologist said that the spill was bad, but was not the disaster that everyone had assumed. He noted that winds had kept much of the oil from coming onshore and that had allowed the microbes to consume the oil out in the Gulf. Some environmentalists were highly skeptical of these claims, and expressed the opinion that researchers who found little damage were lackeys for BP.
Three companies were sued as a result of the spill: BP, Transocean Ltd. (the owner of the drilling rig), and Halliburton Co. (which provided well cementing services). BP may face as much as $17.6 billion in civil pollution fines, and billions more in criminal penalties as a result of the lawsuit. Shortly after the oil spill, BP set up a $20 billion trust fund for victims (e.g., fishermen whose livelihood had been disrupted). BP has set aside a total of $37 billion to cover costs of the spill. These payouts had a positive effect on the local economy. For example, sales tax receipts in one Louisiana parish (county) rose 71 percent after the spill. In a second parish, sales tax collections doubled in the year after the spill. But controversy also developed about how the BP payout money was spent. ProPublica—an independent, non-profit news organization—examined records for one coastal Gulf community and found that companies that were well-connected with local government got lucrative contracts to clean up the spill. One company charged BP $14,500 per month to rent a generator that usually rented for just $1,500 per month. Another company charged BP $1 million per month for land it had been previously renting for $1,700 per month. People who were paid a lot of money by BP came to be known as "spillionaires."
As it anticipates future lawsuits, BP has accused the U.S. government of withholding evidence that the effects of the oil spill were not as bad as everyone thought. For example, it was originally estimated that 4.9 million barrels of oil had spilled into the Gulf, but BP says that government documents may show that the amount is less than that. If it can be shown that less damage occurred, BP would incur reduced fines. Immediately after the spill, many financial analysts thought BP was doomed, and its stock price dropped more than 50 percent. But in the last quarter of 2011, BP's net profit was $7.7 billion.
Question for Discussion
1. Consider the following statement: The oil spill will not lead to any significant prohibitions on deepwater drilling for oil. The world economy demands oil, and this demand will motivate companies (and governments) to continue aggressively drilling in deep water, even though there are dangers in doing so. Do you agree or disagree with the statement? Defend you answer.
Sources: Jonathan Stempel, "BP Claims U.S. Holding Back Spill Evidence; 2010 Gulf Incident," National Post, March 31, 2012, p. FP5; Jeff Feeley, "BP May Face $17.6B in Pollution Penalties; 2010 Gulf Oil Spill," National Post, March 6, 2012, p. FP3; Clifford Krauss and John Broder, "Deepwater Rigs Returning to Gulf of Mexico; After a Year-Long Drilling Moratorium, Companies Intensifying Exploration," National Post, March 6, 2012, p. FP3; Peer Hodson, "BP Simply Comes Up Roses; 2010 Deepwater Horizon Disaster," National Post, February 11, 2012, p. FP10; Gautam Naik, "U.S. News: How Microbes Teamed to Clean Gulf—Scientists Studied 52 Species of Bacteria and Water Currents to Explain Demise of Oil and Gas Plume," The Wall Street Journal, January 10, 2012, p. A3; Kim Barker, "Spilling Over With Riches: A Year Later, Some Gulf Coast Residents are Still Angry with BP, but Others Have Cashed in and Become Instant 'Spillionaires'," National Post, April 15, 2011, p. A3; Philip Sherwell, " 'Not Cataclysmic'; One Year After BP's Spill, the Gulf Coast Shows Resilience," National Post, April 11, 2011, p. A3.
A 'Toxic Culture' at Goldman Sachs?
Until March 14, 2012, Greg Smith was a vice-president at the investment bank Goldman Sachs, earning several million dollars annually. When he resigned, he published a letter in the New York Times, saying that he was leaving because the company's former emphasis on teamwork, integrity, and doing right for its clients no longer existed. He claimed that the firm's moral fibre had declined, and that a "toxic culture" existed that took advantage of clients instead of helping them. He also said that the way to get promoted at the company was to convince clients to make moves that were the most profitable for the company, even if those moves were not in the clients' best interests. Not surprisingly, the company vigorously disputed Smith's claims, saying that was not the way the company did business, and that Goldman Sachs would be successful only if its clients were successful.
When his letter was published, Smith was initially hailed for his courage and honesty, but within days some people began questioning his sincerity and his motives. There was speculation, for example, that Smith made his claims only after being passed over for promotion (the company has five levels of staff, and Smith was at the second-lowest level). One source at Goldman Sachs said that while Smith claimed he was in charge of U.S. equity derivatives activity in Europe, the Middle East, and Africa, he was actually the head of a team of one. It was also noted that Smith had argued with his supervisors over the size of his bonus. Shortly after Smith's letter appeared in the Times, it was announced that he had signed a book deal which would describe his 12-year experience at Goldman Sachs. The deal included a $1.5 million advance. This led to further skepticism about his claims.
While those revelations didn't help Smith's case, criticism of Goldman Sachs from another source did. Leo Strine, a respected judge in the area of corporate law, was the judge in a lawsuit filed by shareholders of El Paso, a pipeline company which Kinder Morgan, a competitor, tried to take over. The shareholders at El Paso claimed that Goldman Sachs had a conflict of interest because it already owned a stake in Kinder Morgan and would therefore benefit if the takeover was successful. They were also concerned that El Paso was sold for too low a price. Judge Strine concluded that Goldman had been influenced to steer El Paso toward a deal with Kinder Morgan because the deal would benefit Goldman. That court case gave more credibility to Smith's claims that client needs were not given enough emphasis.
Other individuals also waded into the controversy. For example, Terence Corcoran, a writer for the National Post, noted that Smith had gotten a lot of publicity with his letter, but questioned the validity of Smith's claims. Corcoran wondered how Goldman Sachs could be such a high-performing company if it treated its clients as badly as Smith claimed. A few days later, James Reith chastised Corcoran for his views and reminded him of several high-profile problems at Goldman Sachs. For example, the company was one of the financial institutions at the heart of the financial meltdown of 2008. It also was accused of fraud by the U.S. Securities and Exchange Commission because it sold clients toxic mortgages (and did not tell clients that Goldman Sachs had bet against those mortgages in order to make money). In that case, emails were produced showing that Goldman Sachs managers referred to the mortgages as "junk," yet still touted them to clients. Reith said that objective observers would conclude that kind of behaviour constituted reckless disregard of clients' interests.
Questions for Discussion
1. Is Greg Smith a whistleblower? Defend your answer.
2. Consider the following statement: Goldman Sachs wouldn't be such a successful company if it didn't put clients' interests ahead of its own profit interests. Do you agree or disagree with the statement? Defend your answer.
Sources: "Former Goldman Sachs Executive Signs Book Deal After His Attack on Firm," National Post, March 31, 2012, p. FP5; James Reith, "A Pattern of Disregarding Clients' Interests," National Post, March 20, 2012, p. FP13; Matthew Holehouse, "Backlash Grows Over Goldman 'Toxic' Blast; Executive Quits Accusing Firm of Self-Interest," National Post, March 15, 2012, p. FP5; Terence Corcoran, "Goldman Story Doesn't Add Up," National Post, March 15, 2012, p. FP1; Boyd Erman, "Goldman Sachs, the Muppets and a 'Toxic' Culture," The Globe and Mail, March 15, 2012, p. B1; "Clients as 'Muppets'," National Post, March 15, 2012, p. FP5.
What's Going On At Air Canada?
As noted in the text, a labour union tries to protect the interests of its members by collectively bargaining with management on issues like wages and benefits. Managing the relationship between a company and its union(s) can be very difficult, particularly if there is a history of poor labour relations in the company. Uncertain economic conditions, like those currently facing many companies, make the job even more difficult.
Consider the recent union-management clashes at Air Canada. When negotiations between the company and the International Association of Machinists and Aerospace Workers (IAMAW) broke down, the union said it was prepared to walk off the job on March 12, 2012. The Federal Minister of Labour, Lisa Raitt, then threatened to introduce legislation that would prohibit the union from going on strike. The legislation—which was introduced on March 14—prevented a strike and also required that the dispute be submitted to binding arbitration. On March 19, another union at Air Canada—the Air Canada Pilots Association (ACPA)—filed a legal challenge to the legislation, arguing that it was unconstitutional because it removed the workers' right to strike under the Canada Labour Code. On March 17-18, a higher-than-usual number of pilots called in sick, and this disrupted a number of Air Canada's flights. On March 22, Raitt was verbally harassed by union workers as she walked through Pearson airport. Three workers were suspended after that incident. The next day, ground workers in IAMAW went on a wildcat (unauthorized) strike which caused dozens of Air Canada flights to be cancelled.
Labour relations have been difficult since 2004, when Air Canada went through a bankruptcy restructuring. For example, Air Canada has been involved in contentious negotiations with ACPA since October 2010. In May 2011, the airline pilots rejected a proposed new collective agreement. In March 2012, the disputing parties agreed to submit to an extended mediation process after an earlier conciliation process did not lead to an agreement. But either side can take actions during the process. For example, management can lock out the pilots, or the pilots can go on strike. The new mediation process may take up to six months to complete.
Other unions are also in conflict with Air Canada. In June 2011, the union representing Air Canada's flight attendants asked for a conciliator to help them reach agreement on a new contract. Eventually the union leadership proposed the terms of new collective agreement to the flight attendants, but they rejected the proposal. That dispute then went to binding arbitration, and in October 2011, the arbitrator imposed the same conditions that the flight attendants had earlier rejected.
In yet another conflict, a strike between Air Canada and the Canadian Auto Workers—which represents workers at airport counters and in call centres—was averted when the disputing parties agreed to submit their dispute to final offer arbitration (a binding type of arbitration where the arbitrator considers the offers from both management and the union, and then picks one offer or the other in its entirety with no compromising). In October 2011, the arbitrator ruled in favour of the union. Air Canada initially tried to overturn the arbitrator's ruling, but then dropped the challenge.
Questions for Discussion
1. Why have so many different unions been at odds with the management of Air Canada?
2. Consider the following statement: Labour and management should be allowed to negotiate collective agreements without government passing legislation that interferes with the process. If a strike occurs, so be it. Do you agree or disagree with the statement? Defend your answer.
Sources: Christine Dobby, "Air Canada Labour Relations Worsen; Wildcat Strike," National Post, March 24, 2012, p. FP4; Scott Deveau, "Air Canada Unions Fight Legislation; Back-to-Work Bill," National Post, March 20, 2012, p. FP5; "Air Canada Pilots' Union to Fight Labour Legislation Preventing Strike," National Post, March 16, 2012, p. FP4; Scott Deveau, "Air Canada Headed for Arbitration," National Post, March 15, 2012, p. FP4; Scott Deveau, "Ottawa Ready to Step in to Avoid AC Strike; Talks Broken Off; Machinists Set To Walk Out During March Break," National Post, March 8, 2012, p. FP5; Scott Deveau, "Air Canada, Pilots Agree to Mediation," National Post, February 15, 2012, p. FP4; Brent Jang, "Rejected Deal Imposed on Air Canada Attendants," The Globe and Mail, November 8, 2011, p. B9; Brent Jang, "Air Canada Moves to Appeal Arbitrator's Pension Ruling," The Globe and Mail, October 24, 2011, p. B3; Brent Jang and Janet McFarland, "Airline Pension Dispute Heads to Arbitrator," The Globe and Mail, June 17, 2011, p. B3; Scott Deveau, "Pensions Next Big Issue for Companies; Air Canada vs. CAW," National Post, June 14, 2011, p. FP1; Scott Deveau, "Air Canada Readies Strike Back-Up; Plans to Use Non-Unionized Workers to Fill In," National Post, June13, 2011, p. FP1; Brent Jang; "Air Canada Flight Attendants Call for Conciliator," The Globe and Mail, June 7, 2011, p. B9; Scott Deveau, "Pilots Reject Tentative Deal; Air Canada Vote," National Post, May 20, 2011, p. FP5.
Kodak's Troubling Moment
If you ask anyone who was born a few decades ago what comes to mind when they hear the word "Kodak," they might respond by saying "Kodak moment" (referring to a famous Kodak advertising campaign from yesteryear). When Eastman Kodak filed for bankruptcy in January 2012, it joined the list of companies whose brands had once dominated their markets, but who had failed to adapt to changing conditions. Here is a brief summary of the Kodak story.
In 1885, George Eastman invented roll film. Within three years, the first Kodak camera was produced. The company prospered by making it easy for consumers to take pictures (prior to that time, the process was very cumbersome). In 1900, the now-legendary Brownie camera was marketed, and in 1935 the first color film—called Kodachrome—was made available to consumers. By the mid-1970s, Kodak controlled 90 percent of the market for photographic film. At that same time, however, Fujifilm began to aggressively compete with Kodak and gradually chipped away at Kodak's market share. But the most significant development was the invention of the digital camera by an engineer at Kodak in 1975. The company developed a variety of digital cameras over the next few years, but top managers apparently had difficulty envisioning a world without film. In spite of Kodak's less-than-aggressive digital strategy, it was actually No. 1 in digital camera sales in the U.S. in 2005. But things went downhill fast after that because Kodak was unable to compete with lower-priced digital cameras offered by Asian competitors. Kodak also failed to anticipate that many photos would be taken on smartphones rather than with cameras. By 2010, Kodak was in 7th place behind companies like Nikon, Canon, and Sony.
Kodak responded to its declining fortunes by cutting costs through outsourcing many of its production activities and by drastically cutting its workforce. In the 1980s, the company employed 145,000 people worldwide, but by 2012 that number had dropped to just 17,000. The company also stopped selling film cameras (2004) and Kodachrome film (2009). Kodak then restructured from three business units (commercial film, consumer film, and printing) into just two business units (commercial and consumer printing). The new structure is expected to reduce costs and increase productivity. Kodak's new strategy is to focus on commercial and consumer inkjet printing, workflow software, and packaging. It hopes the new businesses will become profitable by 2013. In printing, Kodak currently ranks fifth worldwide, with a 2.6 percent market share.
All of these difficulties have led to a drastic decline in the price of Kodak stock. During 2011, for example, the stock price declined 88 percent, and by early 2012, it was selling for just 36 cents per share. The share price improved somewhat when it was announced that the board of directors had appointed Laura Quatela, the company's general counsel, as a co-president to serve with Philip Faraci. They will both report to the CEO, Antonio Perez.
Kodak also has a lot of patents that it may be able to sell for billions of dollars, just like Nortel Networks did a few years ago. In an attempt to generate much-needed cash, Kodak filed lawsuits against Apple, RIM, and HTC, claiming that those companies violated patents that Kodak held on processes like sending photos from mobile devices and previewing images with an electronic camera.
Some observers think that there was nothing Kodak could have done to avoid bankruptcy. But consider Fujifilm, which used to be a small company that played catch-up with Kodak for many years. When digital photography burst upon the scene, Fujifilm diversified into other areas. The restructuring meant cutting billions from its photographic businesses and spending large amounts of money getting into new businesses like cosmetics and electronics. Fujifilm is now a very profitable company.
Kodak's bankruptcy filing marks an astonishing fall from prominence for a company that had dominated the photography business for well over 100 years. The company hopes to emerge from bankruptcy as a smaller company that has very little involvement in photography, but it remains to be seen whether it can effectively compete with its new product lines.
Questions for Discussion
1. What are the key differences between the functional and divisional organizational structures? Which type is Kodak using?
2. What corporate-level strategy did Kodak pursue in the 20th century? What are the advantages and disadvantages of such a strategy? What corporate-level strategy is Kodak pursuing in the 21st century?
Sources: Kana Inagaki and Juro Osawa, "Fujifilm Thrived By Changing Focus," The Wall Street Journal, January 20, 2012, B5; Mike Spector and Dana Mattioli, "Kodak: Tech Firms Hastened Slide," The Wall Street Journal, January 20, 2012, B1; Ben Dobbin, "Restructuring Halts Kodak Stock's Freefall," The Globe and Mail, January 11, 2012, B10; "Kodak Claims Apple Infringing on Four Patents Tied to Digital Images," National Post, January 11, 2012, FP12; Caroline Humer, "End of the Line for Film Group as Kodak Refocuses; Shares Jump 50%," National Post, January 11, 2012, FP12; Dana Mattioli, "Their Kodak Moments," The Wall Street Journal, January 6, 2012, B1; www.wikipedia.org/wiki/Eastman_Kodak; "Eastman Kodak Shares Jump After General Counsel Named Co-President," National Post, December 24, 2011, FP9; "Kodak Eases Fears; Shares Soar 72%," The Globe and Mail, October 24, 2011, B10.
The 'Occupy Wall Street' Movement
There is quite a contrast between the hierarchical structures of Canadian business firms and the "Occupy Wall Street" movement that received so much publicity in 2011. The movement started at Vancouver-based Adbusters, an organization that publishes a magazine critical of excessive consumer consumption. Inspired by the so-called "Arab Spring" in the Middle East earlier in 2011, the staff at Adbusters got together for a brainstorming session, and came up with the image of a ballerina balanced on top of Wall Street's iconic charging bull sculpture. After a simple Twitter hashtag was chosen (#OccupyWallStreet), things got crazy. Thousands of people became excited about the idea and before long a big protest demonstration was planned for New York City. By mid-October, protests were also taking place in major Canadian and European cities. Protests groups set up camps in many places, including city parks, the Vancouver Art Gallery, Zuccotti Park in New York City, and the Toronto Stock Exchange. Protestors met together in large and small groups, played drums, and sang together. Unions and community groups also joined the movement, and a website called "Occupy Together" was started. The movement seemed leaderless, and stood for open, participatory, non-hierarchical decision making, with everyone entitled to provide input and push their own ideas. As one protestor said, "No one is a leader because everyone is a leader."
The Occupy Wall Street movement struck a respondent chord in many people who were frustrated with a political/economic system they saw as favouring corporations and rich individuals. The movement made many demands, the most general being an end to economic inequality. The central message was "we are the 99%," but that message was combined with a dizzying array of other demands: raise taxes on corporations, offer free college education, stop climate change, stop unfair treatment of Muslims, stop home foreclosures, reduce high unemployment, free Palestine, and nationalize the banks. While the situation seemed rather chaotic, there actually was some structure in the movement. For example, daily meetings (called assemblies) were held, which planned the occupation, decided where to march, how to communicate with the media, and how to organize supplies that had been donated. Anyone could participate in the assemblies, and minutes of assemblies were posted online. Since a New York bylaw prevented use of bullhorns without a permit, protestors adopted "the people's microphone" system where someone shouted a message a few words at a time to the crowd, then people who heard that message repeated it for others who were further away.
But opposition to the camps soon developed. City officials, for example, became frustrated by the movement's occupation of public spaces. As police moved protestors out of public parks, and as winter approached, the movement started to fizzle out. A few camps were still occupied in early 2012, but the movement was basically over. As the movement faded, attention turned to a website called leadnow.ca, which some thought would become the focal point for a leaderless organization. During 2011, leadnow.ca organized "vote mobs" on university and community college campuses, and in just a few months, it attracted 60,000 members. Its goal is to have half a million members before the next federal election in Canada.
There were plenty of explanations offered for the failure of the Occupy Wall Street movement. An article in the National Post said it failed because: (1) it had no central message, (2) it lacked an endgame (under what conditions would protestors end their protest?), (3) it had a culture of entitlement (the protests were dominated by the younger generation who expected to be handed the wealth of their parents), (4) it cost money (city officials wanted the encampments dismantled because costs were being incurred to control the protestors), and (5) it ignored basic human nature (internal dissension developed as the tent camps became havens for the disenfranchised of society).
There were other reasons as well. First, the movement had only the vague goal of challenging the status quo. Many specific goals were proposed, but there was never any real consensus on which ones should be pursued. Some critics were openly contemptuous of the movement, noting that it didn't know what it was against and what it was for, and that even if it did know what it wanted, it wasn't clear who would be in a position to grant the movement's demands. Blocking traffic got the protestors noticed, but then they had difficulty explaining why they were blocking traffic. One critic said it was Tahrir Square Canadian style, except that the protestors already had democracy.
Second, the movement was not as egalitarian as generally assumed, and was actually dominated by self-appointed leaders. The camps were criticized even by their own members for exhibiting a hierarchy, and by allowing a few people to dominate the many. This was seen as a violation of one of the basic values of the movement. But humans apparently prefer hierarchy (a study by the National Institute of Mental Health found that human brains are hard-wired for hierarchy). Status is also important to people, and those who are perceived to be "superior" get more attention and respect than those who are perceived to be "inferior."
Third, assemblies were very inefficient and time-consuming, and there was great uncertainty about what would come out of them. People wanted action, they didn't like uncertainty, and they got tired waiting for consensus to develop. Like most utopian movements, Occupy Wall Street could not generate sustained interest.
The anti-hierarchical nature of the Occupy Wall Street movement was supposed to help it succeed. Kalle Lasn, one of the founders of Adbusters, said that critics didn't understand that the Occupy movement was a new-style revolution. It was egalitarian, not vertical, and it didn't have (or want) a designated leader. Instead, it was horizontal because it grew out of the culture of the internet. When asked about the future of the movement, Lasn said that it would adopt a different strategy for 2012, one which involved "surprise attacks" in diverse settings like university economics departments and banks, rather than continuous occupations of city parks.
Questions for Discussion
1. Describe the characteristics of good goals. To what extent did the Occupy Wall Street movement have good goals?
2. What is the difference between "management" and "leadership"? How are these two concepts relevant for the Occupy Wall Street movement?
Sources: Omar El Akkad, "After the Campaign Put Out the Simple Twitter Hashtag #OccupyWallStreet, 'It Just Went Crazy'," The Globe and Mail, December 22, 2011, A12; Kathryn Blaze Carlson, "Utopian Failure; Why The Occupy Movement is Doomed: Human Brains Crave Hierarchy," National Post, November 26, 2011, A10; Gary Mason, "Founders of Leadnow Strive to Build a Progressive Voice with Real Focus," The Globe and Mail, November 26, 2011, A18; "Five Reasons Why Occupy Failed," National Post, November 19, 2011, A10; Gary Mason, "Sorry, Folks, But This Protest's in Danger of Fizzling Out," The Globe and Mail, November 3, 2011, A19; "Rogue Senate Page Lends Her Support to the 99ers; Occupation Peaceful; Protesters in Ottawa, Montreal Camping Out In Downtown Parks," National Post, October 18, 2011, A8; Kim Mackrael, "Occupy Wall Street: Who They Are, What They Want," The Globe and Mail, October 7, 2011, A23; Kelly McParland, "Confused Protesters March On; 'Movements' Don't Have Leaders or Clear Goals," National Post, October 4, 2011, A2.
Increasing Employee Engagement
In a 2011, Psychometrics Canada poll of 368 Canadian HR managers, 69 percent of respondents said that low employee engagement was a problem in their organization, and 82 percent felt that company management should be doing more to increase employee engagement. The HR managers didn't think that employee motivation was low; rather, they felt that managers were not creating the working conditions that would make employees feel engaged. The respondents also expressed the opinion that managers should give employees more recognition and praise (58 percent), should listen more to employee opinions (71 percent), and should provide employees with more learning and development opportunities (57 percent).
A lack of employee engagement is a serious problem because employees are a great source of ideas for improving company operations. For example, at Algoma Steel, a shop floor employee came up with a more efficient process for producing heat-treated steel plates that resulted in $90 million in additional revenue for the company. At ISL Engineering and Land Services, a senior urban designer was interested in making the company "greener," but he didn't want to force the idea on employees from the top down. Rather, he wanted them to help develop ideas. So, 25 employees who were known to be particularly keen about sustainability were named "green champions." They were encouraged to spend up to 10 percent of their time each day working on environmental issues. Jason Kopman, a project manager, is one of the champions; he is analyzing energy-efficient upgrades for the ISL building.
One promising way to increase employee engagement is to use social media. When social media first came on the scene, businesses saw it as a tool for marketing the company's products and services to external groups like customers. But now managers are realizing that social media can be helpful in connecting workers with each other. A survey by International Association of Business Communicators found that 70 percent of companies use social media for internal communications (up from 45 percent the previous year).
About 75 percent of Canadian workers now use social networking sites while on the job. A poll conducted by Robert Half Technology of Canada asked information officers at 270 companies about their company's policy on the use of social media at work. Forty-four percent of the companies allowed employees to use social media sites such as Twitter, Facebook, and LinkedIn for business purposes (that was up from only 22 percent a year earlier). About one-third of the companies still prohibit the use of social media in the office (that is down from 58 percent a year earlier).
Many companies are taking very specific actions to capitalize on the employee engagement characteristics of social media. At Toronto-Dominion bank, the company's internal website has been made into a social media platform that includes blogs, chat forums, surveys, and a feature that allows employees to leave comments on blog pages, news items, and memos. Wendy Arnott, the vice president of social media and digital communications, says that social media is a great way to increase employee engagement.
Sun Life Financial Inc. also uses social media—blogs, online communities, and wikis—to get ideas from employees, and the company has pilot-tested a social media feature that allows employees to respond to the ideas of colleagues. Bill McCollam, the vice president of digital strategy, said the company got a lot of good ideas as a result of the pilot test. Sun's social media site also allows each employee to develop a personal profile, and this helps managers find people with certain skills that are needed for specific projects. Managers have also noticed that the more casual nature of social media encourages timid employees to speak up and become engaged, whereas they often wouldn't do so in formal meetings.
The general push in recent years to make management greener is another area that offers many specific opportunities to increase employee engagement. Jeremy Osborn is the founder of Good Energy, a company that helps other companies get their employees engaged in thinking about sustainability. He says that innovation has to come up from employees, and that increasing employee engagement contributes positively to increased social responsibility.
All of these things are positive developments, but managers must remember that getting employees to actually share ideas with management can be tricky. There are several reasons why workers do not share ideas their ideas:
- Workers fear that such sharing will allow others to take credit for their hard-earned knowledge, or that sharing their knowledge will weaken their position in the company.
- There is a lot of "informal learning" that goes on in companies, but if is not rewarded, it is not likely that employees will share ideas.
- Employees fear that if they share their knowledge, it will be used to increase output, but that may result in layoffs because fewer workers will be needed if each worker is producing more.
- "Social concerns" may prevent employees from suggesting changes, i.e., they fear that bosses and co-workers will be unhappy with suggested changes to the status quo.
- Employees may be intimidated by the power differences that exist between workers and managers.
- Employees may be convinced that management simply doesn't think that they have anything to contribute.
Questions for Discussion
1. What can management do to encourage workers who are reluctant to share their job knowledge with colleagues and with management?
2. Consider the following statement: The use of social media by employees is harmful to productivity because employees are distracted from their work and spend time on personal matters instead. Do you agree or disagree with the statement? Support your position.
Sources: Marjo Johne, "Firing on All Cylinders with Social Media," The Globe and Mail, October 21, 2011, p. B15; Wallace Immen, "Canadian Companies Warm to Social Media," The Globe and Mail, June 10, 2011, p. B16; Darah Hansen, "New Age, New Problems; Social Media No. 1 Concern for Employers," National Post, June 8, 2011, p. FP11; Wallace Immen, "Feeling Unmotivated? HR Managers Say It's the Boss's Fault," The Globe and Mail, March 23, 2011, p. B21; Richard Branson, "Don't Leave Employees on the Outside Looking In," Canadian Business, July 20-August 16, 2010, p. 13; Joe Castaldo, "How To Coax Ideas Out of a Sheepish Staff," Canadian Business, April 27-May 10, 2010, p. 80; Katie Engelhart, "From the Bottom Up," Canadian Business, April 27-May 10, 2010, p. 60.
The Keystone XL Pipeline
Oil is Canada's largest export and it has a significant positive effect on our favourable balance of trade and on our national wealth. The U.S. imports more oil from Canada than from any other country, and to facilitate the exporting of even more oil, TransCanada is planning to build the Keystone XL pipeline to carry oil from Alberta to Houston, Texas (where many oil refineries are located).
After studying the proposal, the U.S. State Department concluded that the pipeline will not be an environmental threat, but environmental groups in both Canada and the U.S. disagree. Their concerns about pipeline safety intensified after several recent incidents where pipelines began leaking. For example, an Enbridge pipeline ruptured during July 2010 and spilled 3.8 million litres of oil into the Kalamazoo River in Michigan, and an Exxon Mobil pipeline later spilled 95,000 litres of oil into the Yellowstone River in Montana. Environmental groups also claim that U.S. State Department officials advised TransCanada Corp. how to build public support for the Keystone pipeline, even though the State Department was at that time in the process of deciding whether to approve the project.
On November 7, 2011 thousands of protestors demonstrated outside the U.S. White House. Their goal was to convince U.S. President Barack Obama to deny approval for the Keystone pipeline. The issue is a real dilemma for Obama because the U.S. wants a secure source of supply for oil, and because the U.S. economy is not in good shape (the proposed pipeline would create many new jobs and would be a secure source of supply). But Obama cannot ignore the protestors because many people who voted for him in 2008 are strong environmentalists. If Obama doesn't respond to their wishes, they may not vote for him in the 2012 U.S. elections.
Demonstrations aren't limited to U.S locations. Canadian activists—led by Greenpeace Canada, the Council of Canadians, and the Indigenous Environmental Network—organized a protest in Ottawa in September 2011. They wanted to raise awareness of the problem and stop approval for the pipeline.
If the Keystone pipeline fails to get approval, one alternative is for Canada to export more oil to the Far East, where demand is expected to be high. Enbridge, for example, is planning a Northern Gateway pipeline that would move oil across northern B.C. to Kitimat. But that pipeline idea has run into resistance from Canadian aboriginal groups who claim it will be an environmental hazard. When opposition like this develops, and there are many different groups with different agendas, the approval process can be very drawn out and the outcome is not certain. For example, the Mackenzie Valley pipeline, which has been discussed for 40 years, was finally cancelled in 2011.
Questions for Discussion
1. What is "the external environment of business?" How does it impact companies like TransCanada Corp. and Enbridge?
2. Do you think the Keystone XL pipeline should be approved? Defend your answer.
Sources: Lee-Anne Goodman, "Celebs Join Pipeline Battle," Winnipeg Free Press, November 7, 2011, p. A14; Tom Ford, "U.S. Environmental Politics Threaten Our Prosperity," Winnipeg Free Press, November 7, 2011, p. A13; Shawn McCarthy, "State Department E-Mails Trigger Allegations of Bias," The Globe and Mail, September 23, 2011, p. B9; "Activists Plan 'Civil Disobedience' in Ottawa to Protest Keystone XL Pipeline," National Post, August 26, 2011, p. FP5; Sheldon Alberts, "Aftermath of a Spill; Enbridge Cleanup Grades Well, but Pipeline Fears Remain," National Post, July 23, 2011, p. FP3; Peter Foster, "Franken Pipeline," National Post, June 17, 2011, p. FP11; Nathan VanderKlippe, "Aging Pipes," The Globe and Mail, February 19, 2011, p. B6.


text:
The Dano Pro Electric Guitar is a first-ever reissue based on the guitar model first released in 1959 and sold through the mid-'60s.
POSTED: 10/21/2011 - 09:17 am
This 12-string features slick retro looks, a masonite/plywood body, 2 lipstick style single-coil pickups, die-cast tuners, painted maple bolt-on neck, rosewood fingerboard, and more!
POSTED: 08/10/2015 - 08:27 am
Danelectro 59-DC double cutaway electric guitar. Lipstick style pickups. Danelectro tuners. "Seal" pick guard. In like-new mint condition. No case or gig bag.
POSTED: 09/13/2013 - 07:08 am
The 56 Single Cutaway is the third reissue of the Danelectro U2 released in 1956. This guitar exeeded my expectations and is truly a great guitar, not just for the money, but in its own right. I love how light the guitar is, it begs to be picked up and played.
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Now I have a great metal guitar for that low, downtuned doom/death stuff and the strings have a tight feel (and sound!) even as low as drop-A. I couldn't really compare it with any other guitars - this model is almost in a league of its own.
POSTED: 05/05/2011 - 08:50 am
The 67 sports a curvaceous body reminiscent of the shape of a Jaguar or Jazzmaster, but with small, shapely buttocks.
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It has a really nice clean tone, but when you start cranking up the overdrive, things start buzzing, especially the bass notes. This guitar has a richer, fuller sound more than a bright sound.
POSTED: 10/04/2010 - 07:59 am
Danelectro 56 Pro guitars are a limited edition re-issue of the Dano guitars from 1956. Danelectros, or Danos, have a cult following, especially in the USA. These guitars have a special sound with twin lipstick tube Alnico pickups. The 56 re-issue Danelectros are very limited. If you're a Dano fan, this Danelectro 56 Pro re-issue is a must.
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It is very lightweight and can easily be played for hours.
POSTED: 04/26/2008 - 05:26 am
The Baritone features slick retro looks, a masonite/plywood body, 2 lipstick style single-coil pickups, Die-Cast tuners, painted maple bolt-on neck, 24 fret rosewood fingerboard, and more!
POSTED: 07/04/2006 - 07:54 am

subset: commoncrawl


text:
Police: Torn-up muddy check leads to Vt IRS evacuation
BURLINGTON Police say a muddy check torn into pieces and sent to the IRS in Burlington caused a hazardous-materials scare that led to the evacuation of more than 100 office workers.
The IRS reported the checks arrival to police at about 10:30 a.m. Thursday. The Lakeside Avenue building was evacuated and police declared it was safe about three hours later.
Police said someone found a mud-covered check, ripped it to pieces and sent it to the IRS. But when the letter arrived, the mud had dried, crumbled to the bottom of the envelope and formed a granular substance, causing some alarm.
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