Article 43
Thursday, July 31, 2008
The Corrupting Influence Of Oil Money
By Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Brad Johnson
Information Clearinghouse
July 31, 2008
The world has never looked better for the Big Five oil companies. This morning, Exxon Mobil, the world’s largest oil company, announced its “second-quarter profit rose 14 percent, to $11.68 billion, the HIGHEST-EVER PROFIT by an American company. Exxon broke its own record.” Joining Exxon Mobil as the only oil companies to “earn MORE THAN $10 BILLION in a single quarter, Royal Dutch Shell said its profit ROSE TO $11.56 BILLION.” ConocoPhillips and BP last week reported their MASSIVE SECOND-QUARTER profits. The fifth oil major, Chevron, will release its earnings report tomorrow. Yesterday, Interior Secretary Dirk Kempthorne announced “a new five-year leasing plan for offshore oil drilling” to give oil companies a “head start” on attacking protected waters, should the Congress follows President Bush, who recently lifted the presidential moratorium on OFFSHORE DRILLING “first issued by his father in 1990.” Rep. Ed Markey (D-MA) described Kempthorne’s announcement as a GOING OUT OF BUSINESS SALE on behalf of Big Oil. The unprecedented profits for Big Oil come at the expense of practically everyone else in the form of a collapsing economy, international instability, rampant COMMODITY INFLATION, and DEADLY CLIMATE CHANGE. However, Big Oil’s windfall has also meant largesse—and CRIMINAL LEVELS OF CORRUPTION—for some in Washington.
RECORD PRICES, RECORD PROFITS: Since 2001, gasoline prices have more than doubled, and oil companies have made more than half a trillion dollars in profits. The price of oil has surged from BELOW $30 A BARREL to over $125, a fourfold increase. The Big Five oil companies could make a PROJECTED $168 BILLION IN PROFITS this year alone. The United States has only two percent of the world’s oil reserves but consumes 25 percent of the world’s oil. “At current oil prices,” conservative oil man T. Boone Pickens argued, “we will SEND $700 BILLION OUT OF THE COUNTRY this year alone.” If we continue on the same path for the next ten years, “the cost will be $10 TRILLION—it will be the greatest transfer of wealth in the history of mankind,” he added. The surging price of oil is due in part to demand growing faster than supply, but also to factors such as “the WAR IN IRAQ and the value of the dollar” and unregulated, ENRON-LIKE SPECULATION. Instead of investing in 21st century energy, the oil companies are plowing most of their profits into stock buybacks, a windfall for their RICH INVESTORS.
OIL’S GIFTS: In a “state-shattering TREMOR in an earthquake of change in Alaska politics,” Sen. Ted Stevens (R-AK) “was charged on Tuesday with concealing more than $250,000 worth of gifts, including home renovations, that he received from an Alaska oil services company,” VECO Corp, “the top Alaska-based contributor to federal politics for at least five election cycles.” The FEDERAL INDICTMENT “accuses Stevens, a former chairman of the powerful Appropriations Committee and the longest-serving Republican senator ever, of USING HIS POSITION IN OFFICE in the Senate on behalf of VECO between 2001 and 2006.” UNCLE TED’S indictment represents the culmination of a MULTIYEAR OIL CORRUPTION SCANDAL of Alaska’s “bullying, NEPOTISTIC political culture”: five state legislators (including Stevens’s SON Ben), four other officials, and Alaska’s congressman Don Young (R) have also been implicated for their involvement with VECO CEO Bill Allen (Allen once told a state lawmaker, “I own your ass"). Over his career, Stevens has funneled over ten million dollars from his oil-funded war chest to other conservative politicians. Politicians who benefited from the $340,000 in campaign contributions from Ted Stevens’s Northern Lights PAC this year alone are being pressured to return the money. Senate conservatives met yesterday to fill the positions vacated by Stevens, whose indictment forced him to give up “his plum committee posts.”
MCCAIN’S EMBRACE: On June 13, 2008, Sen. John McCain (R-AZ) declared, “I am very angry, frankly, at the oil companies not only because of the obscene profits they’ve made but at their failure to invest in alternate energy to help us eliminate our dependence on foreign oil.” Since then, McCain’s tenor on Big Oil has completely changed, now championing the views of “oil executives.” “My friends, we have to drill offshore. We have to do it. ... The oil executives say within a couple of years we could be seeing results from it. So why not do it?” he said recently. McCain’s reversal took place on June 16, when he headed to Texas for oil-sponsored fundraisers and “declared support for offshore drilling.” In the following month, his campaign’s embrace of a Big Oil agenda has grown tighter. The campaign arranged an oil-field photo shoot after McCain had to cancel a planned visit to an oil platform in the Gulf of Mexico because of a hurricane and an “untimely” oil spill. And Big Oil has embraced McCain, now that he has climbed aboard the Big Oil express. The day after his speech, “McCain raised $1.3 million at a closed-door luncheon and reception at the San Antonio Country Club.” The Washington Post reported recently, “Campaign contributions from oil industry executives to Sen. John McCain rose dramatically in the last half of June. ... Oil and gas industry executives and employees donated $1.1 million to McCain last month—three-quarters of which came after his June 16 speech calling for an end to the ban—compared with $116,000 in March, $283,000 in April and $208,000 in May.”
Under The Radar
ENVIRONMENT—STATES AND ENVIRONMENTAL GROUPS TO SUE EPA TO GET EMISSIONS RULES: A coalition of states and environmental groups INDENDS TO SUE the Environmental Protection Agency (EPA) “if it does not act soon to reduce pollution from ships, aircraft and off-road vehicles.” California Attorney General Jerry Brown is set to send a letter to the EPA in which he will “accuse the Bush administration of ignoring their requests to set restrictions” on greenhouse gas emissions. The EPA will have 180 days to respond. Under the Clean Air Act, “a U.S. district court can compel the EPA to take action to protect the public’s welfare if the agency delays doing so for an unreasonably long time.” “It’s a necessary pressure to get the job done,” Brown said of the lawsuit. “The issue of reducing our energy dependence and greenhouse gas emissions is so challenging and so important that we have to follow this judicial pathway.” In the last year, states have also sued the EPA for dragging its heels in regulating carbon dioxide and for having lax smog standards. This week, lawmakers called on EPA Administrator Stephen Johnson to resign because he has become “a secretive and dangerous ally of polluters.”
ECONOMY—NEW YORK AND MARYLAND GOVERNORS URGE FEDERAL ACTION ON ECONOMY: Citing President Bush’s record deficit, rising food and energy costs, high unemployment, stagnant wages, and a “shell-shocked stock market,” Govs. Martin O’Malley (D-MD) and David Patterson (D-NY) writein a Washington Post op-ed today that they have come to Washington, D.C. “to call on the federal government to help all states navigate an economic crisis the likes of which we have not witnessed since the Great Depression.” They note that in their respective states, they have “stepped up where the federal government has fallen down” by investing in clean, renewable energy, education, infrastructure and health care. O’Malley and Patterson urge the federal government to “pass a second stimulus package that includes investments in our nation’s infrastructure” and provides “additional extension of unemployment insurance and assistance for low-income Americans.” They also demand fiscal responsibility from the federal government and urge it to examine its “irresponsible spending” over the last seven years. O’Malley will discuss his views on progressive fiscal responsibility today at the Center for American Progress.
JUSTICE—WHITE HOUSE DIRECTED AGENCIES TO HIRE 108 PEOPLE WHO ‘LOYALLY SERVED THE PRESIDENT’: A “little-noticed” passage in Monday’s Department of Justice Inspector General (IG) report on the politicization of the department revealed an e-mail from the White House political affairs office clearly urging federal agencies to hire Bush loyalists. The May 2005 e-mail directs agencies to find jobs for 108 people on a list of “priority candidates” who “loyally served the president.” “We simply want to place as many of our Bush loyalists as possible,” the e-mail said. The New York Times notes that the message “urged administration officials to ‘get creative’ in finding the patronage positions.” Two days later, the White House’s liaison to the Justice Department replied exuberantly, “We pledge 7 slots within 40 days and 40 nights. Let the games begin!” Yesterday, IG Glenn Fine testified before the Senate Judiciary Committee and said that former Attorney General Alberto Gonzales “said he wasn’t aware of what was going on” in his agency. White House spokeswoman Dana Perino refused to say whether President Bush is “disappointed” in Gonzales.
Think Fast
Exxon Mobil broke its own record for “the highest-ever profit by a U.S. company,” as second-quarter profits rose 14 percent. “Net income in the quarter rose to $11.68 billion, or $2.22 a share, from $10.26 billion, or $1.83 a share, last year.”
Citing reductions in violence in Iraq, President Bush said this morning that “combat tour lengths for U.S. troops will be reduced to 12 months from 15 months.” While 147,000 U.S. troops remain in Iraq, Bush said troop reductions might be possible because the “terrorists are ‘are on the run.’”
Senate conservatives debated yesterday whether to threaten a government shutdown as a way to force a vote on offshore drilling. Congress would have to pass a continuing resolution in September to keep the government functioning, and conservatives are mulling a filibuster.
The Department of Health and Human Services is “reviewing a draft regulation that would deny federal funding to any hospital, clinic, health plan or other entity” that does not allow employees to opt out of providing birth-control pills, IUDs, and the Plan B contraceptive. The draft considers certain contraceptives as destroying “the life of a human being.”
Iraq and the U.S. “are close to a deal on a sensitive security agreement” that satisfies Iraq’s “desire to be treated as sovereign and independent.” The agreement “guarantee[s] that there would no longer be foreign troops visible on their land—and leaves room for them to discreetly ask for an extended American presence should security deteriorate.”
11: The number of U.S. troops killed in Iraq this month. That is “the lowest monthly toll since the 2003 invasion, according Pentagon figures, highlighting what US commanders say is a marked drop in overall violence.”
More than 3.7 million Americans have had their full-time jobs cut to part time because of weak business, which is “the largest figure since the government began tracking such data more than half a century ago.” The loss of pay has reinforced “the downturn gripping the economy” for millions of American families because “paychecks are shrinking just as home prices plunge and gas prices soar.”
And finally: Grassley prescribes a legislative laxative. Yesterday, Sen. Chuck Grassley (R-IA) complained about “Democratic leaders stymieing his tax-extenders legislation” by using “a metaphor to which many of his silver-haired colleagues could relate.” “Issues are building up,” said Grassley. “The Senate is constipated. This body needs a...laxative.”
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Wagener v. SBC Pension Plan Class Action Settlement
Agreement Reached in AT&T Pension Calculation Lawsuit Reports Cohen, Milstein, Hausfeld & Toll and the Gottesdiener Law Firm
Forbes
July 29, 2008
Attorneys for a class of participants in the AT&T Pension Plan today announced an agreement to settle a class action lawsuit filed in 2003 under which the AT&T Pension Plan will pay a total of $16 million to settle a claim that it miscalculated the pension benefits owed to some non-bargained (management) retirees of certain AT&T companies who retired under a 2000 early retirement windowknown as the Enhanced Pension and Retirement Program ("EPR").
The federal court lawsuit in Washington, D.C., Wagener, et al. v. SBC Pension Benefit Plan-NonBargained Program, Civ. Action No. 03-00769 (D.D.C.) (RCL), alleged that the Plan (since renamed the AT&T Pension Plan), incorrectly omitted pay earned for work performed during an averaging period used as one component in the calculation of retirees’ pensions for retirees entitled to one of several pension options. The Plan denied liability and contended that the omission of the pay in question was authorized and consistent with the terms of the Plan. In 2004, the district court agreed that the Plan’s interpretation was reasonable and dismissed Plaintiffs’ claims. Plaintiffs appealed and in 2005 the District of Columbia Circuit Court of Appeals reversed the dismissal of the case and reinstated Plaintiffs’ claims. See Wagener v. SBC Pension Benefit Plan--Non-Bargained Program, 407 F.3d 395 (D.C. Cir. 2005). Following remand, the district court certified the case as a class action and for over two years, the Parties engaged in substantial discovery, filed and briefed various motions and filed amended pleadings. Near the completion of the discovery process, the Parties reached agreement on the terms of a settlement.
After the deduction of notice costs, and attorneys’ fees and compensation for the named plaintiffs in amounts to be determined by the Court, the net settlement benefit will be distributed to the approximately 3,800 plan participant class members and their beneficiaries on a pro rata basis (using the Plan’s fall 2001 estimates of participants’ benefits compared to the overall amount paid to those participants as a group). The net average additional payment, calculated as a lump sum, that each plan participant class member and his or her beneficiaries is expected to receive is approximately $2,900.00. The vast majority of participants and their beneficiaries will be able to elect to receive a tax-qualified additional lump sum payment. A small number of participants and their beneficiaries, those who originally received tax-qualified annuities, will have the option of taking an increased monthly annuity or a one-time qualified lump sum payment. About 10% of plan participant class members or their beneficiaries will receive a non-tax qualified lump sum.
To become effective, the agreement must be both preliminarily and finally approved by Chief Judge Royce C. Lamberth of the United States District Court for the District of Columbia. As part of the agreement, a second case, pending in the Western District of Texas, Calder, et al. v. AT&T, Inc., et al, 07-cv-00340-XR (W.D. Tex.), brought on behalf of the class raising other claims seeking the same relief, will also be dismissed with prejudice.
Eli Gottesdiener, one of the attorneys for plaintiffs and the class, hailed the settlement as an “excellent result given the very real risk the class could have ended up with no additional benefits had we litigated the case to judgment. Frankly, these are difficult cases to win.”
Class members can obtain more information about the settlement from Class Counsel or at theis WEBSITE.
Plaintiffs and the Class are represented by attorneys Eli Gottesdiener, Gottesdiener Law Firm, PLLC, Washington, D.C. and New York, and Marc I. Machiz, Cohen, Milstein, Hausfeld & Toll, PLLC, Philadelphia, PA.
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China Trade Costs Jobs In Every State
By Robert E. Scott with research assistance by Emily Garr
Economic Policy Institute
July 30, 2008
Unbalanced U.S. trade with China since 2001 has had a devastating effect on U.S. workers. Between 2001 and 2007, 2.3 million jobs were LOST OR DISPLACED, including 366,000 in 2007 alone (Scott 2008). These jobs were displaced by the growth of the U.S. trade deficit with China, which increased from $84 billion in 2001 to $262 billion in 2007.
Growing China trade deficits between 2001 and 2007 eliminated jobs in all 50 states and the District of Columbia. Jobs displacement exceeded 2.0% of total employment in Idaho, New Hampshire, South Carolina, Oregon, California, Minnesota, Vermont, Texas, and Wisconsin (see Map). The effects of growing trade deficits with China have been felt widely across the United States and no area has been exempt from their impact. While traditional manufacturing states such as Wisconsin, Tennessee, and the Carolinas were certainly hard hit, so too were states in the tech sector such as California, Texas, Oregon, and Minnesota. Rapidly growing imports of COMPUTERS and ELECTRONIC PARTS accounted for almost half of the $178 billion increase and eliminated 561,000 U.S. jobs. Idaho, which lost an estimated 9,000 jobs in computer and electronic products alone, was the hardest-hit state in the country in terms of share of total state employment.
The US-CHINA trade relationship needs a fundamental CHANGE. Addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps.
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Tuesday, July 29, 2008
Alcatel-Lucent’s Russo Quits
[CEO Pat] Russo has taken a tough path to success. Unlike peers in the tech industry who prod development of new products in big growth areas, Russo’s track record has largely been built on slashing products and JOBS, first at Lucent and now at Alcatel Lucent.
- Lucent CEO On The Ropes - The Street 9/28/07
Generally when you see the big shots from a company start leaving, it often means one thing - DEATH of the company is near.
Today, the two biggest shots of ALCATEL-LUCENT said they’re leaving.
For something to live, sometimes another must die.
Lets hope for a rebirth of the famous BELL LABS, UNIX, etc.
And AMERICA.
But first, departing CEO Russo will get severance of 2X her annual pay - something like $10 million dollars - for ruining the company. I wonder what the rest of her Golden Parachute will be.
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To pave the way for a fully aligned governance and management model going forward, the company announced the following changes to its management team and Board of Directors:
· Non-Executive Chairman Serge Tchuruk has decided to step down on October 1, 2008.
· CEO PAT RUSSO has decided to step down no later than the end of the year, and at the Boards request will continue to run the company until a new CEO is in place to effect a smooth transition and maintain the continuity of the company’s business.
· The Board will commence a search for a new non-executive Chairman and CEO immediately.
· The Board is also initiating a process to change the composition of the Board to a smaller group that will include new members.
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Alcatel-Lucent’s Russo, Tchuruk to Quit; Loss Widens
By Rudy Ruitenberg
Bloomberg
July 29, 2008
Alcatel-Lucent SA, the world’s largest supplier of fixed-line phone networks, said Chief Executive Officer Patricia Russo and Chairman Serge Tchuruk quit after the sixth straight quarterly loss.
Alcatel-Lucent rallied as much as 6 percent in Paris trading after the announcement. The net loss widened to 1.1 billion euros ($1.7 billion), or 49 cents a share, from 586 million euros, or 26 cents, a year earlier, the Paris-based company said in a statement today.
Russo and Tchuruk were the architects of Alcatel SA’s November 2006 purchase of Lucent Technologies Inc., creating a company that has never earned a profit, shed 62 percent of its market value and is eliminating 16,500 jobs. Russo, 56, hasn’t said when she expects the losses to end. She will step down by the end of the year, while Tchuruk, 70, will leave Oct 1.
“We’ve waited for these departures for a long time,” said Frederic Hamm, who helps manage 150 million euros at Agilis Gestion in Paris and doesn’t own Alcatel-Lucent shares. “Every earnings report there was a new profit warning.’”
Analysts predicted a net loss of 135 million euros, the median of eight estimates compiled by Bloomberg News. The second- quarter loss included a writedown of 810 million euros for the unit that supplies networks based on code division multiple access, or CDMA, a wireless technology used by Verizon Communications Inc. and China Unicom Ltd.
Disaster
Alcatel-Lucent shares rose 15 cents, or 3.8 percent, to 3.98 euros as of 11:53 a.m. in Paris. Before today, the stock had fallen 23 percent this year, while Stockholm-based rival Ericsson AB lost 14 percent. About 14.5 billion euros of Alcatel-Lucent’s market value had been wiped out since the merger.
“In the past quarters, Alcatel-Lucent has disappointed, missed forecasts and underperformed,’” said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori Sgr in Milan, including Alcatel-Lucent shares. “At this point, the resignations were inevitable. It’s a disaster. Now someone must rescue what’s left.”
The decision to leave was made by Russo and Tchuruk, spokeswoman Regine Coqueran said. Russo will be entitled to severance pay of twice her annual salary, or as much as SIX MILLION EUROS (1.00 Euro = 1.56 US Dollars) based on this year’s base pay of 1.2 million euros and maximum bonus of 1.8 million euros.
CDMA Business
The CDMA business declined at a faster pace than anticipated in the quarter, Alcatel-Lucent said. CDMA sales are falling as operators invest in networks that use the global system for mobile communications, or GSM, or a newer technology called W- CDMA to provide third-generation mobile services.
Lucent was the market leader in CDMA when acquired by Alcatel. The combined company also had a fourth-quarter writedown of 2.52 billion euros last year, most of it to reduce the value of the CDMA business in the books.
Alcatel-Lucent and Ericsson, the world’s biggest maker of wireless equipment, have both said the market for networks will stagnate this year.
“Alcatel’s problems don’t depend uniquely on Russo and Tchuruk,” said Matthieu Bordeaux-Groult, an analyst at Paris- based Richelieu Finance, which oversees $6.2 billion. “There’s little visibility and a delicate merger to put into place. Russo and Tchuruk kept promising more for the future and then it never happened.’”
Revenue dropped 5.2 percent to 4.1 billion euros, in line with analyst estimates.
Sales Forecast
Today, Alcatel-Lucent reiterated its April forecast that 2008 sales will fall 2 percent to 5 percent because of the dollar’s drop against the euro and possible spending delays by some clients. The dollar slipped 14 percent against the euro in the year to June 30.
On July 22, Ericsson said second-quarter profit fell 70 percent. The company reiterated that demand for networks will remain “flattish” this year. Ericsson is slashing 4,000 jobs.
Alcatel-Lucent cut 6,700 jobs last year, reducing the number of employees to 77,400 at the end of December. The company raised its job-cut target in October in response to falling sales. Cash costs for restructuring will be 1.7 billion euros to 1.9 billion euros through the end of 2009, the company has said.
Last year’s second-quarter loss included 250 million euros to amortize the Lucent purchase and a 298 million-euro writedown of the unit that provided wireless networks based on the third- generation W-CDMA technology.
Dollar’s Impact
Alcatel-Lucent revised its 2008 sales outlook in April to a decline from an increase, and Russo said the ``big-deal issue’’ is the dollar, with the company getting more than half of its sales in dollars or related currencies.
Excluding accounting changes from the merger, the company reported an adjusted net loss of 222 million euros, compared with a shortfall of 336 million euros a year earlier. The loss on that basis had been seen at 5 million euros, based on the median estimate of 11 analyst estimates.
The company reported a second-quarter adjusted operating profit of 93 million euros, beating the 70 million-euro median estimate of 14 analysts.
Alcatel-Lucent said it will begin looking for replacements for Russo and Tchuruk immediately. Henry Schacht, Russo’s predecessor as Lucent CEO, will step down from the board.
“This is the news investors would like to see because the merger with Lucent and the problems at the start showed that they were not the right kind of people for this type of business,’’ said Robert Gallecker, an analyst at BayernLB in Munich. Investors had been saying for six months that “there should be a change in the management,’’ he said.
Paris-based Alcatel and Murray Hill, New Jersey-based Lucent, unable to revive sales or their share prices after the technology bubble burst in 2000, combined in 2006 to fight competition from China’s Huawei Technologies Co. and Sweden’s Ericsson.
“It is now time that the company acquires a personality of its own, independent from its two predecessors,” Tchuruk, the former Alcatel chief executive, said in a statement.
To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg at bloomberg.net
SOURCE
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Why did it take so long?
Alcatel-Lucent bosses are finished
Dial Zero
July 29, 2008
The chairman and chief executive officer of MONEY-LOSING French-American telecom giant Alcatel-Lucent will both resign later this year, the company said Tuesday, as stagnant demand and the weak dollar foiled the promises of its two-year-old merger. Chairman Serge Tchuruk and CEO Pat Russo’s departures come as the world’s largest telecom gear maker reported its sixth consecutive quarter of losses. The company reported a net loss of $1.73 billion for the second quarter.
Alcatel-Lucent said Tchuruk will step down Oct. 1, and Russo will resign “no later than the end of the year.”
The company, which was formed through the 2006 MERGER of France’s Alcatel and US-based Lucent, is in the middle of a painful restructuring that foresees 16,500 job cuts.
In its statement, the company quoted Tchuruk, Alcatel’s longtime chairman and CEO before the merger saw him take on the non-executive chairman role, as saying the resignations were aimed at giving Alcatel-Lucent “a personality of its own, independent from its two predecessors.” Russo was quoted as saying that although she was “pleased” with the company’s progress, “the company will benefit from new leadership ... to bring a fresh and independent perspective.”
When conceived, the Alcatel-Lucent merger was designed to boost margins through cost and R&D savings, while improving the joint company’s pricing power with telecom operators, its largest customers. But intense competition in the industry means many of the savings have been used on discounts passed on to customers. Alcatel-Lucent’s stock price has fallen by over three-fifths since the merger, and the company has yet to post a profit.
RUSSO SURVIVED calls for her resignation at Alcatel-Lucent’s annual shareholder meeting in May, where she was barraged with jeers and whistles by investors furious over the company’s performance. Russo was criticized by shareholders not only for the shares’ slide, but also for her demeanor, her inability to speak French and, above all, her salary. In 2007, she was paid nearly $3 million.
In Tuesday’s statement, the company confirmed its outlook for the rest of the year, which forecasts an adjusted operating margin in the low- to mid-single digit range and an adjusted gross margin in the mid-thirties. It also said it continues to expect revenue to decline in the low- to mid-single digit range. Alcatel-Lucent makes about half of its sales in US dollar or dollar-linked currencies and has suffered from the US currency’s weakness to the euro.
In the second quarter Alcatel-Lucent reported revenue of $6.5 billion, down 5.2 percent from $6.8 billion a year earlier. Excluding the foreign exchange impact, sales were up 1.7 percent. Sales will stagnate or decline slightly in the third quarter, the company added.
The company warned that a spending slowdown by telecom carriers which began in the US could move to European operators but that this is being offset by stronger-than-expected demand for mobile telecom gear in Asia and strong demand for services like network operation and integration. Overall, the company still expects the telecom equipment and service market to be flat this year.
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Chairman Tchuruk, CEO Russo To Step Down From Alcatel-Lucent
By Leila Abboud and Jethro Mullen
Wall Street Journal Online
July 29, 2008
The architects of the trans-Atlantic merger that created Alcatel-Lucent two years ago are stepping aside, leaving a telecommunications-equipment firm still struggling to figure out how to survive in an industry plagued by increasingly brutal competition and eroding profits.
Chief Executive Patricia Russo will leave the company by year-end as she helps look for a successor, Alcatel-Lucent said in a statement Tuesday after reporting a net loss for the quarter ended June 30 of 1.1 billion ($1.73 billion) compared to a net loss of �586 million a year earlier. Chairman Serge Tchuruk will step down on Oct.1.
“Our strategy is taking hold, and our results are demonstrating good operational progress. That said, I believe it is the right time for me to step down,” Ms. Russo said in the statement.
The exits of Ms. Russo and Mr. Tchuruk will bring to a close a painful first act for the telecom-equipment giant, which was created in 2006 by merging the Paris-based Alcatel SA and the Murray Hill, N.J.-based Lucent Technologies.
Since the merger, Alcatel-Lucent has reported six consecutive quarters of losses, and its market capitalization has been cut in half.
Investors and analysts have been urging the company to remove Ms. Russo for more than a year, and news of her and Mr. Tchuruk’s departure buoyed the company’s stock, which is traded on the Paris exchange. Alcatel-Lucent shares rose 2.4% to 3.92 in midday trading.
Yet some expressed concern that no successor had yet been found, and doubted whether the change in leadership meant that Alcatel-Lucent’s fortunes would improve.
“I don’t think it should be seen as good news,” said WestLB analyst Thomas Langer. “What you need in such difficult times is true leadership.” Mr. Langer, who has a “sell” rating on Alcatel-Lucent stock, said no potential replacements spring immediately to mind.
When the merger was announced two years ago, Ms. Russo and Mr. Tchuruk had touted the link-up as a way to gain scale and cut costs in order to better compete with new low-cost manufacturers emerging especially from Asia.
Another factor that had pushed the two companies to merge: telecom operators such as Verizon CommunicationsInc. and Spain’s TelefonicaSA were also consolidating, so gear makers had to follow suit to try to maintain negotiating power with their customers.
But right away, Ms. Russo found herself struggling to integrate the two firms. The expected cost cuts, especially in research and development, were much more difficult to wring out than expected.
To make matters worse, Alcatel-Lucent competitors such as Telefon AB L.M. Ericssonwent on the attack, trying to steal customers while the Franco-American firm was distracted.
Alcatel-Lucent was forced to cut prices and even take some losing contracts last year to keep a foothold in important emerging markets like China and India. The company issued repeated revenue and profit warnings, losing the confidence of some analysts and shareholders.
Pressure on Ms. Russo increased last fall, when the French press was awash with reports that the board was growing concerned about the firm’s woes. Ms. Russo weathered the storm, getting the board to approve a new turnaround plan that included a new streamlined management team.
Since then, however, the company’s performance has continued to founder. Alcatel-Lucent’s �1.1 billion quarterly loss announced on Tuesday was partly the result of a 810 million goodwill write-down related to one of the company’s wireless divisions. Revenue declined 5.2% to �4.1 billion, hurt by the dollar’s weakness in relation to the euro.
The picture doesn’t look much brighter for the rest of the year, as economic woes make telecom operators reluctant to spend to upgrade their networks.
The company maintained its 2008 outlook of a 2% to 5% decline in revenue, an adjusted operating margin in the mid single-digit range and an adjusted gross operating margin “in the mid-thirties.” Alcatel-Lucent still expects the overall telecom equipment and services market to remain flat in 2008.
In its statement, the company also said it would overhaul its board to bring in fresh blood and reduce its size. One director, Henry Schacht, who preceded Ms. Russo as CEO at the former Lucent, will resign from the board immediately, the company said.
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Sunday, July 27, 2008
On The Absurdity Of Maximizing Shareholder Value
By Cory Doctorow
Boing Boing
July 26, 2008
Over on Crooked Timber, Daniel Davies has uncorked a hell of a rant on the fatuous absurdity of the old saw that “corporate officers have a fiduciary duty to maximize shareholder value.” He starts off by pointing out that you could maximize the profits of the company for this quarter by, for example, firing everyone—but that the next quarter would be pretty dismal. Then he gets into the meat of it, how every conceivable action can be justified as “maximizing value.”
In real life, the business judgement rule protects more or less anything that the Creative Capitalism gang might want businesses to do. Even the paradigm example used by Posner of a corporate chief executive making charitable donations and specifically saying that they weren֒t doing it for PR purposes and that they didnt run the company in the interests of the shareholders Җ doesnt actually necessarily give rise to a situation which would fail the business judgement test, because thatҒs pretty much the story of Body Shop, and if the only way that a company can secure the services of a talented and energetic cosmetics executive like Anita Roddick is to give away money without regard for shareholders, then thats in the interests of shareholders. There is, of course, a cottage industry in business school cases and the funnies pages of the Economist in proving that instances of corporate philanthropy are actually in the interests of shareholders in the long term.
And, of course, the long term is a terribly difficult thing to forecast. It would, we can presume, be pretty bad for the S&P500 index if the Antarctic ice cap melted and we all drowned. Conversely, if the continent of Africa were to develop a billion consumers in a first world economy, that would be pretty good for the share prices of most companies on the stock exchange. There is a general long time interest of all humanity in doing good (thatҒs why its called ғgood) and corporations and their shareholders do, in fact, share in this general interest of humanity. If you want to argue in any particular case that an act of corporate philanthropy isnԒt connected tightly enough to a specific benefit which can be appropriated by the company and that this is wrong, then go for it but dont expect the courts to agree with you.
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