Management

I have been a frequent critic of Netflix’s really silly and insulting habit of “throttling”.  Essentially if you are a frequent Netflix user, they tag your account making it more difficult to get the newest releases.  Put a new release in your queue and you are often greeted with “long wait” or “very long wait”.  This allows Netflix to ship the newest releases to customers that watch fewer movies or are new to the service.  While most brands seek to reward their best customers, Netflix takes the opposite approach and penalizes customers that stick with them  so they can make a little more money on customers that at least inititially use them less.

There are a few options to solve the problem.  One approach is to open a new account under another family member’s name.  I opened an additional Netflix account under my wife’s name and all the new releases are miraculously available.

Another option is to use Blockbuster’s online service, which works about the same as Netflix and is priced similarly.  Blockbuster’s potentially clear advantage is that they allow you to use the stores and the online service under one account, but I have not been in a video store since the days of VHS, so this was of no interest to me.  I tested Blockbuster’s online service against Netflix and found the following -

• I put five identical new releases in my Netflix and Blockbuster queue.  Netflix listed all five as ”long” or “very long wait”.  Blockbuster listed one as long wait, and was able to ship all the others immediately.  Good job Blockbuster.
• However, Blockbuster took two to three days to get the DVDs to me – versus one day from Netflix. 
• On average, Netflix’s site is much easier to navigate and use.

So if you are getting throttled and want the newest releases, and don’t mind waiting an extra day or two, Blockbuster is the way to go.  Of course, I cannot assure you that Blockbuster doesn’t also engage in throttling once you become a big user.

And despite my disappointment over Netflix’s bad customer treatment, I maintain my Netflix account, and I should also admit, I am a stockholder and a big believer in the long term prospects for the company.  One reason I stick with Netflix is their wonderful download service.  If you install the right piece of hardware (I use both an HD Tivo and a Samsung DVD player, but there are now many options) you can choose from thousands of movies to download direct to your television, and it is all included in the price of your membership.  (To be fair, Blockbuster now offers this service, with different terms, and I have not tried it.) But it was Netflix that really pioneered and scaled the idea, and I believe that just as the video store is practically obsolete, we are approaching a time when DVDs will be largely eliminated in favor of downloading and streaming.  Netflix, Apple, and perhaps Amazon are in prime positions to capitalize on this development, and I own all three stocks.

While Apple builds terrific proprietary hardware that allows you to stream their entertainment, Netflix has taken more of a Microsoft approach, working with multiple consumer electronic companies to allow downloading via their equipment.  Netflix is also doing some interesting deals with the studios, agreeing to delay certain releases on DVD on their site to allow the studio more initial profits by selling DVDs, but in exchange getting the rights to release earlier than the competitors via downloading.

All these moves were apparent when Netflix released earnings a few weeks ago.  Strong profits have driven the stock price up $12 a share in just the last month.

Ultimately, I think their practice of throttling is short-sighted, but they are doing so many other great things with the company that I remain a long-term believer.  In the meantime, Blockbuster is trying to catch up, but they are years behind, and they are saddled with a lot of real estate and an old business model to dispose of.

Terrorists seek to disrupt through fear. And the more afraid they make us the more apt we are to act emotionally and irrationally because of this fear. Since 9/11 we have acted irrationally when it comes to air travel, and the failed Christmas plot has really driven us into frenzy that is causing us to take ridiculous actions. If next time terrorists threaten a shopping mall, then I assume we would develop irrational fears and actions to protect malls. And soon the terrorists are essentially in control, as fear has driven us to change our lifestyles. There is a big difference between taking reasonable methods to protect our security, and completely altering our lifestyles because of fear.

I would argue that there is a more subtle, but perhaps even more dangerous kind of terrorism going on courtesy of the American media. Unfortunately fear drives viewership, and the media thrives on any story that makes us afraid. Consequently most of our legitimate journalists have been replaced by these new media “terrorists” that seek ratings by filling us with fear, anger, and distrust. They operate from both the left and the right, spewing rumors and innuendo that keep people glued to the screen. When much of the population is convinced that our President is actually a socialist foreign-born Muslim that favors killing off the elderly, people naturally get afraid. It also spreads panic when people are convinced that the world will end in the next few months due to global warming, that Pakistan and North Korea are preparing nuclear strikes, and that the flu vaccine is deadly. Certainly global warming, nuclear weapons, and public health are important issues that need to be discussed, but the terrorists in the media are less interested in public discourse than they are sensationalism.

I think it is quite possible that the ranting and fear mongering that now typifies mass media is having an incredibly negative long-term impact on society. The truth is that for most of the world, this is the best possible time to be alive. While the human race is far from perfect and we face many massive problems, the large majority of mankind lives happier, healthier lives than those that came before us. But that doesn’t make good news. Nor does all the incredible work that is going on around the world that will solve these big problems.

These media terrorists might not blow up airplanes or plant roadside bombs, but I suspect they are even more effective than Arab terrorists at destroying optimism and people’s spirits. Luckily these kinds of terrorists are easier to identify, and easier to eliminate than the ones that live in caves in Pakistan. We need to eliminate them by turning the dial, refusing to buy their ridiculous books, complaining to the companies that support them with advertising, and flatly rejecting their terrorist messages designed to crush our spirits.

As the major retailers go cautiously into the holiday season hoping for a rebound, there is one huge national retailer that is experiencing tremendous growth and profitability – Goodwill. The thrift store now has over 2300 stores and 2 billion in sales! I’m not sure this is necessarily good economic news (what does it mean if America moves from Saks to Goodwill to do their Christmas shopping), but congratulations Goodwill!

As we continue to wade through the financial morass primarily caused by incompetent and greedy bankers, it is particularly disturbing to note that we have not only failed to take steps to fix a broken system, but we have actually made it worse.

Our government had to pay the financial tab to rescue banks “too big to fail” for fear that if these banks went down the economy would collapse with them.  In fact, in some cases the government actually forced big banks to become bigger. And a year later what do we now have? Banks really, really too big to fail. Consider the statistics….

Fifteen years ago the top five banks in the US controlled about 11% of the banking industry.

Today the top three banks control a little over 10%.

So we have reduced competition among big banks by 40% and essentially handed over a large segment of the economy to even larger more bureacratic institutions that are primarily known for their failures.

Though I recognize the need for big banks (my company needs and works with one), we should seriously question continued governmental support of a massive financial infrastructure controlled by a few – be they banks or any other huge financial institutions.  Companies that do business on a national or international scale and have complex banking needs are well-served by mega-banks, but the lifeblood of small business and local economies remains with the local bank.  The local community depends on local financial representation that knows the city, and the businesspeople that make the city work, as opposed to an economy ruled by policies set thousands of miles away based on factors that have nothing to do with local conditions.

But unfortunately the public, and government, have short memories.  Instead of passing proper legislation and taking the right steps to prevent another economic melt-down, we have breathed a sigh of relief that it didn’t get worse, and allowed the massive financial machine that caused the mess to grow even more ominous.

If you manage people, or spend any significant time around groups of people, you are undoubtedly well-versed on the “Conflict Avoider”.  While the Conflict Avoider might be a terrific individual and good at their job if they are in the right position, they can cause tremendous damage to an organization if they are placed in the wrong position, especially in our current economy.

Conflict avoiders have a hard time undertaking difficult actions, and in today’s business environment where optimal performance is essential they can severely impact the bottom line.  Conflict avoiders hate to discipline or fire people, so as managers they are much more tolerant of expensive mediocrity.  They also tend to build weak teams, as they favor harmony in the workplace over the more-difficult-to-achieve high performance department.  They detest having to call a client to collect money, sometimes going as far as covering up for a delinquent receiveable, so they can temporarily avoid difficult interaction with clients and management. They hate to be the bearer of bad news to the client or the company, which creates an entirely new set of issues as either party proceeds in business with a false sense of security.

From management’s perspective it is essential to quickly identify Conflict Avoiders and move them out of key positions that require strength, coach them to be more aggressive, or if possible find positions in the organization where their “softer touch” is an asset.  Too often, upper management suffers from their own brand of conflict avoidence, as it is easier to ignore than fix the problem.

I know that when you are working in the trenches, it’s often difficult to have a perspective on what your boss notices.  Many bosses are unfortunately like me; distracted, aloof, short tempered, running between meetings and phone calls.  And accordingly it is easy to imagine that your boss has a somewhat limited awareness of what is going on directly around them, as if concentrating on the big picture somehow makes it impossible to see the small picture that surrounds you.

But most of the time that is not the case.  While there are many exceptions, most people did not get to be the boss by ignoring the little things. While the boss may choose not to directly address the fairly minor good and bad actions of employees, there is a very good chance that they do notice almost everything, and these observations may ultimately be very positive or negative to your career.  A few things that I (and most bosses) consistently notice :

• When you come to work.  I have a big window in my office that looks out over the building entrance.  Often while I am on phone calls I watch as employees enter the building.  I know who is consistently late.  I also know who leaves for extended coffee breaks and long lunches, and who leaves early.  On a positive note I know who shows up on time and puts in the hours.
• Your writing and communication skills.  I notice if you write intelligent and concise emails and letters as opposed to rambling diatribes.  I notice if you have a personality and the confidence to greet me and your co-workers.  I really notice if you have charisma – as it is one of the most difficult attributes to find in business.
• Your interest level in the business.  I notice if you are a student of the business; someone who takes the extra time and effort to really learn how the company operates.  And I especially notice if after really learning the business you have thoughts and ideas about how to improve things. I notice good ideas.
• Enthusiasm.  I notice and really appreciate it if you have it.
• If you are a whiner.  Whiners easily stand out. If you focus on problems without solutions you make an impact on me – and not a positive one.
• Ambition.  I like ambitious people, especially if they are willing to do the work to achieve their ambitions.

And that is just a partial list.  Sometimes I notice silly, yet in some way very significant things. A month ago I watched as two employees walked by a sack of garbage that was in front of the building entrance.  A third employee returning from lunch stopped to pick up the garbage and discard it.  My immediate reaction was that either the first two did not respect the company or they were incredibly lazy.

My big point is that your boss probably notices the little things too, and the little things can often have a big impact on your career.

In these tough economic times we should all make use of every resource we have available, and accordingly it’s probably a good idea to revisit the idea of closing Guatanamo Bay.  Sure, our little Carribean torture palace has been an insult to the very concept of what it means to be American, an international embarassment,  and an afront to human dignity, but is that any reason to abandon a perfectly good prison!  Perhaps we were just imprisoning and torturing the wrong people.

These economic times have revealed an entirely new kind of Weasel that is probably best sent on an extended tropical vacation.  A few candidates…..

Stewart Parnell, President of The Peanut Corporation of America, ran the filthy food company that is now responsible for nine deaths and over 600 illnesses in one of the largest salmonella outbreaks in history.  In true Weasel form, Parnell and his plant manager Sammy Lightsey pled the fifth, refusing to take responsibility for their incompetent management that continues to threaten our entire food supply.  Since his plants were filled with roaches, rats, and mold, he would probably find Guantanamo downright luxurious by comparison!  Of course sending an executive to Guantanamo might seem extreme, but consider the crime.  If an Arab terrorist had poisoned our food supply, killing and injuring hundreds of people, what would we have done?

And why not make Bernie Madoff his bunk mate?  Hmmm, wonder who would be the wife and who would be the husband?  The 70 year old Madoff will go down in history as the perpetrator of one of the biggest Ponzi schemes in history, robbing hundreds of people of over 50 billion dollar, and further progressing the collapse of our financial market.  If a terrorist had planted a bomb in the NY Stock exchange and cause the market to lose $50 billion dollars, what we we do to that terrorist?

The sad fact is that aside from 9/11, the worst damage that has been inflicted on America came not from terrorists, but from home-grown incompetent, dishonest, greedy Americans that have reeked havok on the country.  Lets send them south!

These are crazy times in the workplace, and I suspect it is going to get worse over the next few months.  Financially-challenged companies are rushing to lower overhead with massive lay-offs, and even relatively healthy companies are taking the opportunity to closely analyze expenses and overhead.  It is easy to get caught in the crossfire and find yourself cleaning out your desk.  A few simple hints on how not to be a casualty and live a relatively sane life during the financial crisis:

• Don’t overreact, and get the facts.  A good friend of mine runs a very successful company that is actually expanding during this crisis. He is taking advantage of the fact that some of his poorly run competitors are not doing well, and he is hiring key employees that have been layed off.  Despite this fact a rumor started in his company that they were in trouble, and now he has to spend valuable time convincing people they are not getting fired.  Don’t listen to rumors or naturally assume your job is on the line.  It causes needless angst.   Get the facts from people that really know. [click to continue...]

In Oregon, Paul Fahey, who was convicted of murdering his wife by setting her house on fire four years ago, is suing the county claiming he received inadequate medical care for the injuries he received in the fire he set.

Most likely the state is paying for the attorney to sue the county, with the enormous legal costs of the silly suit being absorbed by the taxpayers.  Perhaps Paul should have been shipped off to a prison much further away than Oregon where he could have recuperated better from his unfortunate injuries.  Maybe somewhere more tropical….. hmmmmm, maybe Cuba?

During these crazy market gyrations people are naturally concerned about the safety of their cash – be it in bank accounts or money markets.  In an earlier post I wrote about steps you should take to protect your cash and investment assets.  Since then the federal goverment has stepped up to assure more protection to investors.  FDIC limits have been raised from $100,000 to $250,000, and they recently began offering protection to many money market accounts.  On September 29, the U.S. Department of the Treasury opened its Temporary Guarantee Program for Money Market Funds a plan to protect certain shareholders of money market mutual funds from losses if their funds are unable to maintain a $1.00 net asset value.  The Treasury Department has posted a few “FAQs” on the program that I have listed below -

What funds were eligible to participate?
According to Treasury, all money market mutual funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940, maintain a stable share price of $1 or more, and are publicly offered and registered with the SEC were eligible to participate in the Program. Tax-exempt and taxable money market funds were eligible to participate.

Why is the Program limited to accounts and assets as of Friday, September 19?
The decision to limit the Program to the value of accounts at the close of business on September 19 arose from grave concerns that ICI raised with the Treasury over the Program’s potential effects on flows among funds. Recently, large institutional shareholders, who hold almost two-thirds of assets in money market funds, have been moving money from general-purpose money market funds into funds that invest primarily in Treasury securities. The Program raised fears that this flow of funds would suddenly reverse if general-purpose funds joined the Program. By limiting the protection to account balances as of September 19, Treasury’s amendments should alleviate that problem.

Money market funds have $3.4 trillion in assets. The Program is funded with $50 billion. Is that enough?
We believe that the program is large enough to help restore investor confidence, for three reasons:

• In the 25-year history of money market funds, only one fund ever failed to maintain the $1.00 NAV prior to the unprecedented market conditions of recent weeks. Money market funds are strictly regulated by the SEC and operate under tight requirements for the liquidity, creditworthiness, and diversification of their assets.
• When a fund cannot maintain the $1.00 NAV, the shortfall is likely to be just pennies on the dollar. The fund that broke the buck in 1994 ultimately paid investors 96 cents on the dollar. If the guarantee plan were used, it would probably be called upon to pay only a small percentage of the assets of a covered fund.
• Recent large redemptions and other strains in money market funds have been caused primarily by lack of active trading in the money markets, principally in commercial paper. The Federal Reserve has taken and continues to take additional steps to improve liquidity in those and other markets. If those steps succeed in unlocking these markets, we have every hope and expectation that this Progam will never pay a claim.

I had an account in a money market fund on September 19, but I’ve withdrawn or added money since. How much am I covered for?
If your fund enrolled in the Program and then cannot maintain the $1.00 NAV (or, depending on the fund, a NAV greater than $1.00), you will be covered for the amount you had in the fund on September 19, or the amount you have when the Program is invoked-whichever is less-so long as you did not actually close your account. Treasury’s investor FAQs offer examples.

Is there a cap on the amount per account that’s covered?
No, there is no per-account cap on the coverage.

Why should I invest now in a money market fund if I’ve missed out on the guarantee plan?
Money market funds have long provided investors with capital preservation along with competitive rates of return. Money market funds are strictly regulated by the SEC and operate under tight requirements for the liquidity, creditworthiness, and diversification of their assets. In 25 years, $325 trillion in assets have flowed in and out of money market funds. Those same regulations are in place for all investors, whether they are covered by the guarantee plan or not.

Are retail and institutional shareholders all covered? What about foreign shareholders?
The plan covers all shareholders, retail and institutional, domestic and foreign, who had accounts on September 19 in the eligible funds that enrolled.

What about foreign-domiciled funds?
Only U.S.-registered funds that operate under Rule 2a-7 and are publicly offered were eligible for the plan.

How will I know if my fund is participating in the Program?
Ask your fund sponsor.

How long does the Program last?
The Program is intended to address temporary dislocations in credit markets. The initial Program will operate for three months, after which the Secretary of the Treasury will review it. The Secretary has the option to renew the Program until September 18, 2009. If the Secretary renews the Program after the three-month review, funds must re-enroll to extend their participation.

What were the Program costs? Who will bear the fees?
Funds paid a fee of 0.01 percent (1 basis point) or 0.015 percent (1.5 basis points) of their assets as of September 19, based on their NAV that day, for the initial three months. The fee may be paid from shareholder assets.

How will the coverage work?
If a participating fund cannot maintain its NAV (typically $1.00, but sometimes more), and the fund sponsor chooses not to provide credit support, the fund board would notify the Treasury that it has determined to liquidate the fund. The fund would then close and liquidate. The Program would pay the fund the difference between a $1.00 NAV (or an NAV of greater than $1.00) and its shareholder payout; the fund would distribute that payment to shareholders.

Does the Program cover a fund that broke the buck before September 19?
No.

What should I do if I’m concerned about my money market fund?
Contact the fund company for its latest available information.

So, the bottom line seems to be the following:

1. Check to see if your fund is participating.
2. Note you are only covered by this program if you invested in the money market fund prior to September 19th.
3. Also note the covereage ends on December 19th.