Article 43
Tuesday, December 22, 2009
Equity Extraction
Many Highly Profitable Companies Cut Jobs in 2009
By Andrea Orr
EPI
December 23, 2009
EARLY IN 2009, Microsoft Corp. announced its FIRST mass LAYOFF ever, cutting 1,250 jobs as part of a plan to eliminate 5,000 positions over the next 18 months. Like just about every company doing business during the recession, Microsoft was facing a challenging business climate and an uncertain outlook. But Microsoft was at the time - and remains today - highly profitable. It earned a net profit of $14.6 billion in fiscal 2009 and was ranked one of the 10 most profitable companies in the United States.
Microsoft was one of many profitable companies that cut a large number of jobs in 2009. While companies typically defend such moves as necessary to prepare for more challenging business conditions in the future, the layoffs they carry out often serve to grow profits for shareholders. Today, the economy is showing signs of growing again but layoffs continue to mount, and this extreme attention on the part of companies to saving money is arguably to blame. President Obama noted this disparity between rising gross domestic product and a lack of hiring early this month at the White House Jobs Summit.
He said:
Cost-cutting has become embedded in their operations and their culture
Clearly, business is highly competitive, and the news of the past year is full of companies that went out of business or had to scale back their operations dramatically to stay alive. But there were also many very healthy companies that cut.
Some examples:
--Wal-Mart. The retail giant, another one of the countrys most profitable companies, did not have massive layoffs in 2009, but it did trim its staff on multiple occasions, including 650 workers from an Ohio facility that it shut, and 800 at its corporate headquarters. In its fiscal year 2009, which ended last January, the company earned a $13.4 billion profit and grew its revenues a healthy 7% to $405.6 billion.
--IBM. The software maker cut close to 10,000 jobs this year, despite being one of the standout high-tech companies that managed to grow its business during the recession. Its profits last year grew 18% to $12.3 billion, and although the companyҒs sales slumped in 2009, its profits continued to grow, thanks in part to the cost-cutting. IBM CEO Samuel Palmisano earned a total of $22.2 million last year, including base salary, bonus, and stock options, and shareholders have also profited from the companys aggressive cost-cutting. IBMҒs stock price is up almost 50% from the start of the year
--Aetna. The health insurance provider recently cut 1,240 positions in anticipation of falling enrollment. It earned a $1.38 billion profit last year and its revenues have steadily risen in recent years.
--Danaher Corp. The medical device maker laid off 3,300 workers as it moved to integrate two other companies it acquired. Its profits last year totaled more than $1.3 billion. The companys stock is up about 30% for the year.
--Verizon Communications. The telecommunications giant slashed 8,000 jobs deemed ғredundant after its purchase of rival carrier Alltel. The companyԒs net profits jumped 14% to $6.4 billion in 2008, and it continued to expand its business through the most challenging times of 2009. Its most recent financial report in October shows quarterly earnings growing by 25%. Even through the worst of the recession, we have continued to raise our dividend and add new customers, expand markets, and grow revenues,Ӕ the companys CEO recently told shareholders.
--Monsanto. The maker of agricultural products more than doubled its net profit in two short years, to more than $2.1 billion in fiscal 2009. In response to a slowdown in business toward the end of this year, however, it announced a corporate restructuring and cut 900 jobs. In addition to a $2.46 million base pay, CEO Hugh Grant earned bonuses and options bringing his total compensation to $17.4 million.
--Phillip Morris. The maker of cigarettes and other tobacco products saw minimal impact on sales during the Great Recession. But in April it announced 1,100 job cuts, partly a result of plant consolidation. Both revenues and net income are up for the year, and the companyҒs chief financial officer recently boasted to investors that its strong financial performance confirms our companyӒs ability to grow even in these difficult times.
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Provide A Public Service With Small Profits, Or Destroy It With Large Ones?
The Agonist
December 11, 2009
Call me a contrarian on this one. But I don’t buy all the hype that the internet is even the primary culprit of the DEMISE OF JOURNALISM. The PRIMARY CULPRIT is the same as it is all over the country, in every industry and in government: equity extraction.
Let me explain, in short: when EXECUTIVES expect unrealistic profits of 20% and higher per annum on businesses something has got to give. It’s an unnatural and unsustainable growth rate. For the first ten or so years of a small to medium size company’s life? Sure. But when you are 3M, or GE? Unrealistic and ultimately impossible.
So, when such rates cannot be achieved by organic growth in the business, executives start shaving off perceived fat and before they know it they’re cutting off the muscle and then shaving off bone chips. And when they’ve gotten to the bone chips they borrow other people’s money to buy new companies, load up those companies with debt and extract equity form them and then because it looks like the parent is still growing award themselves huge bonuses. It’s a shell game.
That is what has happened to the news industry in America. The excessive obsession with unnaturally high profits has led to a vicious circle of cutting budgets, providing less services, which is then followed by even more drastic cuts. The local San Antonio paper is a great example of this. Twenty years ago there were two large dailies in my hometown. Both competed with each other for real scoops. Both had book reviews by local writers, providing local jobs. Both covered the local arts and sports scene. Both covered local politics in depth and local and state news in depth. Both had vigorous investigative teams. Both had bureaus in Mexico and both had offices and reporters on the ground in DC.
And then corner offices of Gannet and Harte-Hanks were populated with Kinsey-esque managers and the rout was on. Gone are the bureaus in Mexico. Today book reviews are now outsourced !for free! to bloggers via syndication. (And while it is well and good to have one’s name in print, I’d submit most would like some earnings off their intellectual property, as well.) Local arts? The office in DC? Well, that’s the AP, now. So, today, San Antonio has one daily that is as flimsy and tiny as the local alternative. The only real strength left with the local daily is the City Hall coverage. Everything else has been outsourced to the wire services or people writing for free. It’s hardly more than thirty pages. That’s a lot of wealth destruction and job loss in twenty years. And 80% of this happened before Al Gore even invented the internet. All in the name of higher industry profits--not some overwhelming fear of the world wide inter-tubes. So, who’s profiting? Certainly not the intellectual vigor of the locals? And certainly not the writers who are all now ‘journalism entreprenuers.’ The only people who profited are the executives who obsessed over profits, to lard up their own bonus pool.
And while I agree with the overall thrust of Massig’s argument HERE, mostly because I think we are too far gone to get back to where we started, I think the overly obsessive focus on large profits, or the free market in general, when it comes to journalism is wrong.
The question that journalists inevitably ask Google, Schmidt went on, is, okay then, why don’t you just writeus a large check? The problem, he said,
is that just transferring money from an area where we’re making a lot of money to an area where were making little money does not solve the problem for the long term. YouԒre fundamentally better off building the new product that is profitable and growing - again with the news, with magazines and so forth. Its better for everyone. Because ultimately a subsidy model is a temporary solution. It’s not a long-term solution.
On that point, I think Schmidt is right.
No, Schmidt is wrong. It’s not about subsidies. It’s about money. And it’s about profits. And it is all about collecting obscene profit margins. When you run a public service it’s reasonable to expect reasonable rates of return. But not obscene ones. Same with the banks. Same with the cable news programs. Same with network news and newspapers. Reasonable profits are sustainable. The Google model is not.
You can provide a public service with small profits for a long, long time, but if you demand large ones you will destroy it. Just ask the big banks.
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