BBA Economic Digest

August 25, 2019

Corporate America's New Promise

 

It was a sign of the times: The Business Roundtable, a group of chief executive officers of nearly 200 major U.S. corporations, issued a statement with a new definition of the “purpose of a corporation.”

 

The re-imagined idea of a corporation drops the age-old notion that corporations’ function first and foremost to serve their shareholders and maximize profits. Investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities are now at the forefront of American business goals.

 

"Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans,” said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable

 

For half a century, companies were mostly run for all stakeholders, notes Andrew Ross Sorton in this NYT piece. The economist Milton Friedman helped change that by declaring that businesses should focus solely on profits.

 

“Layoffs increased, research and development budgets were cut, and pension programs were traded for 401(k)s” as a result, Sorton wrote.

 

Fortune's Alan Murray said the BRT's commitment it is partially driven by CEO fears that free-market capitalism is under assault, and that companies must reframe their own narratives before it's too late.

 

 “Americans mistrust companies,” writes Sorton, “to such an extent that the very idea of capitalism is now being debated on the political stage.”

 

For this supposed changed mission to be meaningful, the signatories are going to have to alter their behavior in ways large and small, and maybe even in ways that aren't always optimal for maximizing short-term profits. Can they do it? Will they do it? The proof will be in the pudding.

 

 

Save Capitalism by Paying People More

 

In an opinion piece in the New York Times, Tom Wilson, the CEO of Allstate Corporation, writes that boards and CEOs of American companies have a societal responsibility to create more higher-paying jobs.

 

"Americans need higher-paying jobs. Businesses have the resources and capabilities to make this a reality."

 

Despite the unemployment rate being near a record low, Wilson says most Americans are struggling.

 

"We all have relatives, friends and acquaintances who are struggling to keep up. Being broke while working is not an American value. Poor financial health creates stress, reduces hope and undermines capitalism. It is a cancer waiting to metastasize."

 

Wilson cites a 2018 Gallup poll, indicating that less than half of young Americans today support capitalism.

 

"This reflects the fact that business is not fully meeting society’s expectations: serving customers, making a profit, creating jobs and improving communities. Businesses are serving customers well and making good profits. But there is not enough focus on creating jobs that provide a living wage."

 

 

Consultants Coming Clean

 

Site selection and traditional real estate transactions are linked at the hip, but they are not the same animal. Both usually involve a search, but different factors come into play with each.

 

One is a holistic management consulting exercise with a location outcome, and the other is a facility or site decision that has business implications of a different sort. When a site selection project comes to fruition, a real estate transaction will almost always result.

 

I have no problem with licensed agents and brokers getting a commission for their work on real estate transactions. Virtually every state real estate regulatory body in the country affirms commission payments, with the requirement of transparency. On a related note, I see my wife bust her you know what in residential real estate usually netting less than 2 percent.

 

But I'm opposed to the business practice of charging fees based on a percentage of financial incentives awarded or accessed. (I've heard 30 and even 50 percent.) Despite any pleas to the contrary, there is a conflict of interest inherent with such arrangements.

 

Bottom line: Site selection consultants who base their fees in part or in total on incentives have put themselves in a position to steer clients to places where they (the consultants) will make more money.

 

Does it happen? Well, what do you think?

 

My friend Chris Steele with Conway Inc. agrees. Here is what he says:

 

"Transparency and objectivity are values all should push for in any form of advisory relationship. Unfortunately - as was described in the Wall Street Journal article from May 18 ("Meet the Fixers Pitting States Against Each Other to Win Tax Breaks for New Factories"), our - Site Selectors' - profession and reputation suffers when our compensation comes from something other than good, well-thought out, professional advice.

 

"This is why will always and only price site selection projects as time and expenses, or flat fee for defined service. I will never charge a percentage of incentives identified or negotiated as this compromises my objectivity. I STRONGLY urge other site selectors to make their own similar pledge. I also strongly encourage economic developers to ask the consultant they work with to come clean on their own practices."

 

 

Leggo My Logo

 

Within four feet of my work desk, I spied 12 different logos on 12 different items, and I was probably missing a few.

 

Most marketing gurus will tell you that logos matter, that they are actually quite important in conveying brand identity. The optimum word here is identity. We want people to identify our business organizations, be they companies or economic development organizations, through our logos.

 

Bottom line: Logos are all about identification.

 

For years, I didn't have a logo that I was happy with. Then in 2017, with the help of some crash test dummy friends, I came out with a new logo. I say crash test dummy friends (they're much smarter than me), because I engaged them in a form of market testing, inflicting concept designs on them and asking for their opinions. 

 

Logos, however, don't convey competency. (Other than picking out logos.) A business can have the coolest logo, but still not be hitting on all cylinders. My BBA logo doesn't indicate if I'm good or bad at economic development consulting. (I'd like to think I'm good at it.)

 

My advice: Get yourself a good logo, but be good, very good, at what you do. By the way, Bell's in Kalamazoo, Mich., is very good at making beer.

 

 

Uber Does Dallas

 

Uber’s announced expansion in Dallas creating 3,000 jobs is a win for the city after a losing bid for Amazon’s second headquarters.

 

The tech company’s large office in Deep Ellum is expected to revitalize Dallas’ urban core and help the city better compete with its northern suburbs, which have attracted the likes of Toyota North America’s headquarters in Plano and other major corporations.

 

State, city and county leaders approved nearly $36 million in economic incentives to bring Uber to Dallas. The company says it will create 3,000 jobs and pay at least an average annual salary of $100,000. CBRE guided the company's search.

 

Uber has large offices in Seattle, Chicago, New York, Washington, D.C., Los Angeles and Pittsburgh, which is the major office for Uber’s autonomous driving-focused division. It’s building a new headquarters in San Francisco for up to 8,000 employees, which will open in 2020.

 

The company recently signed a 10-year lease for a 463,000-square-foot office in Chicago but did not say how many employees would work there, according to the Chicago Tribune.

 

Uber lost a whopping $5.2 billion in the second quarter of 2019, its deepest quarterly loss ever, thanks to an expensive initial public offering earlier this year.

 

 

Constructive Criticism

 

An email that I sent to an economic developer in Georgia last week.

 

"Hi Joe, (Not his real name.)

 

"Thank you for for subscribing to BBA Economic Digest. I do hope you find our newsletter of value, as it is aimed at working economic developers and business people.

 

"Fyi, I just visited your website and nowhere on it can I find your name. I did see your email address, but no name is attached, which struck me as a bit odd.

 

"Bottom line: You are the executive director and site selection consultants and companies will want to know who they are dealing with. I hope you understand that my criticism is offered in the spirit of trying to help. This should be an easy fix, and I hope you'll make it. -- Dean"

 

Good news. Joe responded, and he wasn't not mad all.  Indeed, he was thankful. He made the needed changes on his website. But he is wondering where his shoes are.

 

Demographics Matter 

 

A growing, youthful population is typically a bedrock sign of economic vitality. But much of the world now teeters on the cusp of a childless, elderly future.

 

As we're in this boat together, we face two primary solutions: Loosen up currently fraught politics around migration from still-growing countries. Or populate our countries with robot helpers.

 

It means people are going to have to work longer, and "major reforms" in programs for the elderly will be required, says Richard Cincotta, director of the Global Political Demography Program at the Stimson Center, and formerly a lead demographer for the U.S. intelligence community.

 

Minus immigration, the populations of the U.S., Japan and all of Europe are shrinking. By 2050, 48 countries or areas will have fewer people. We're notably seeing this in rural America. The fertility rate in the U.S. in 2016 was the lowest it has ever been -- 1,765 births per 1,000 women of child-bearing age, below the replacement rate of 2,100.

 

At the same time, there will be more old people: forecasts include a spike in the number of people 80 and over. 

 

Why this matters: We are looking at a future that will not have sufficient working-age people to support the elderly. Currently, North America has just under four workers per retired person. Seven European countries have three, and Japan has just a bit more than two.

 

 

The Economic Impact of Immigrants

 

Immigrants in the U.S. are twice as likely to start businesses as their native counterparts and generate at least $1 trillion in annual sales revenue, according to the New American Economy.

 

No matter where they relocate, immigrants frequently have more capital to start new enterprises than native-born citizens due to personal savings and family loans, the National Bureau of Economic Research has found.

 

Some theorize that discrimination in the labor market pushes immigrants to start their own ventures.

 

Wrote Adrian Furnham with the WSJ: "Outsiders face a tough struggle fitting into a new culture. They must figure out how to deal with, and overcome, frustration, loneliness and a steep learning curve. And that’s why immigrants make such great entrepreneurs -- they’re once again outsiders facing many of the same kinds of obstacles. Been there, done that."

 

One out of every five entrepreneurs in the U.S. is an immigrant. Approximately 3.2 million immigrants run their own businesses, says NAE, a group that supports immigration. These businesses generate $1.3 trillion in total sales and $405.5 billion in tax revenue annually.

 

Almost 8 million Americans are employed at immigrant-run businesses, according to NAE. In 2012, immigrants started 40 percent of new businesses in California, New Jersey and New York. 

 

 

Don't Miss Out

 

It wouldn't be Fall without the limited edition Pumpkin Spice Spam. It will be available on Sept. 23 at Walmart and Spam’s online store. The pumpkin spice flavor comes from cinnamon, clove, allspice and nutmeg. Hormel Foods, which produces Spam, recommends pairing it with waffles, frittatas, cornbread or a fall vegetable hash, per CNN. I'm going to try it with beer.

 

 

What We're Reading

 

Why Kentucky Miners Are Blocking a Coal Train  Medium

 

The "follow-up appointment." Washington Post 

 

The Big Business of Scavenging in Post Industrial America  New York Times

 

Humans Need to Take Charge of Their Robots  Axios

 

The Amazon is Burning. It's Going to Get Worse.  Bloomberg

 

The Fastest-Growing U.S. Cities Aren't What You Think  CityLab

 

 

Parting Thoughts

 

We leave you with a passage from the book "Uniquely You," by Ron Kitchens, senior partner and CEO of Southwest Michigan First, based in Kalamazoo, Mich.

 

"The shocking thing is that, even in a world where practically all knowledge is available through a smartphone, it is still incredibly difficult to recognize what we don't know. We're all guilty of being unaware of our own areas of ignorance. Leaders are rarely afraid to ask questions but often don't know the right questions to ask.

 

"The best way to learn and improve is to put yourself in new, unfamiliar situations and to always pay attention through all your senses. Be willing to learn from anyone and any opportunity and always assume you don't already have all the answers. There's always more to know, and it's up to you to learn."

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