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The government bailout of the auto industry raised the question, whether government should invest in a financially distress firm. An investment by the government raised several questions about the government’s role in a free market. Some were quick to label that we are as a nation turning towards socialism because the government was investing in a publicly held company and becoming part of the management. In the case of the auto industry, the government was not participating in day to day activity of the corporation but as a lender and investor of a company. It is common for investors and lenders to participate in corporate level decisions to make sure the investment will be protected.  The government was using the taxpayer’s money and making sure that the taxpayers’ investment would be protected.

The relevant question is not whether the government is turning toward socialism but whether the government should bail out a bankrupt industry. The answer lies in how you define capitalism; there is no standard definition of capitalism.  Capitalism is an economic process, economic system, or an economic philosophy that suggests that production and investment decisions are made by individuals and businesses to make profits, and if the losses occur, the investors absorb it. In capitalism, there is no restriction on investment by the governments. Both Federal and State Governments invest their billions of dollars in pension funds in the publicly held corporations on a regular basis. The bailout of the auto industry by government was a good decision based on economic conditions at that time, local employment situation, and profit opportunities for taxpayers from investment. The restructuring of the auto industry and the current growth of the industry suggests that taxpayers will benefit when General Motors Company issues IPO later this year. If the bailout was the test for the capitalism, the capitalism is alive and well in America.

bloger@sunlona.com

The oil spill in Gulf of Mexico raises the question why do we take this risk to explore offshore oil? Transportation is the backbone of the economy, and we need oil for transporting goods and services and to keep the economy growing. Oil is a natural resource and a scarce commodity. History shows that whenever there is a scarcity of resources, business seizes the opportunity by taking higher risk to make higher profits from scarce resources. Also, political conflicts occur among the nations to access or control the scarce natural resources. In a high-risk industry such as oil and coal the chances of disaster are always higher than any other industry. The question is whether the government should allow the business to take such risk to generate profits for the shareholders. The answer is businesses have the right to make their own business decisions because we are a free society and believe in free market concept.

In the oil exploration and production industry, the business decision has the significant impact on both the economy and the environment surrounding the oil exploration facility.  The government must require businesses to prepare a disaster management plan before oil exploration, and it should be reviewed and approved by an independent agency. The oil spill of Valdez, and hurricane Katrina suggest that we have not learned the lessons from the past. The problem in all the disasters was the communication, coordination, evaluation, and response. In the Gulf of Mexico’s oil spill, we have experienced the same problems of communication, coordination, evaluation of degree of severity of oil spill, and the response.

Our country is divided on the issue of offshore drilling. The fact is we cannot survive without oil because it is the backbone of our economy. The government and the oil industry need to work together to develop a plan that includes a risk analysis, and disaster management plan. The disaster management plan must include how the communication channels will be established after the disaster, how information will be shared, the coordinating structure of the disaster management parties, how the problem will be evaluated, and who will be involved in formulating and implementing the solution to manage the disaster.

Oil spill disasters are different than a hurricane and earth quakes. In a hurricane, the impact of the hurricane on the areas can be determined and recovery and relief may start right after the hurricane.  In oil spills the disaster continues until the source of disaster is brought under control. In this situation, a dual disaster management approach is required. One team should be focused on the source of the disaster, and another team should be focused on controlling the spreading disaster oil spill. The response to the oil spill in Gulf of Mexico suggests that there was no risk analysis done and no disaster management plan was in place to protect the environment and the economy surrounding the oil exploration and production facility.  As a result of lack of planning, the oil spill has severely impacted both the environment and the economy of Louisiana, Mississippi, Alabama, Florida, and more.

To protect our environment and economic well being of the business surrounding the offshore oil exploration facilities, the government must require oil companies to prepare a disaster management plan before the drilling permit is issued. Oil companies must be required to maintain a disaster reserve in a trustee account, bond, or any other instrument that can be used immediately after the disaster to manage disaster and provide economic relief to the affected areas. This reserve account or bond is similar to a common practice used by local governments that requires businesses to post a bond before they receive license to operate. The goal of the disaster reserve, bond, or any other financial instrument is to protect the environment and the community. Finally, the oil spill disaster cannot be managed by a business; there must a partnership between government and the business to manage oil spill disaster.

bloger@sunlona.com

There is nothing wrong with possessing a winning attitude in us. A winning attitude is the core component of a free and capitalistic society. It creates competition, generates growth, and improves the standard of living of society. A winner in a product and the marketplace is rewarded with profits for the company and wealth for the stockholder.  In sports a winner or winning team is recognized for their achievement and rewarded monetarily, and the fans of the winning team are rewarded with the individual psychological needs.  The purpose of the competition is to promote dedication, excellence, risk taking, continuous improvement, and benefits everyone in the society. This year’s Super Bowl was a good example of competition.  Both teams worked hard to win the game and made it entertaining for everyone who watched the game. After the game the New Orleans quarterback stood in front of TV cameras with his son in his arms; whether you were an Indiana or New Orleans fan, you knew that wining is not just for a trophy or about a symbol of the team, it is about people. That’s one reason our forefathers who wrote the constitution, and laid the foundation of the political infrastructure for serving the country created the legislative, executive, and judiciary branches. Most probably they believed that separating and laying a competitive political infrastructure would best serve people of our country. In the current political environment, the meaning of competition is to win at any cost, and the victory belongs to the party. This approach has divided the country and the country is not benefiting by this political strategy.  The Congressmen and Congresswomen, and Senators are not just serving their constituents (communities), they are elected to serve the nation, that’s why they have the title of US in front of their title (Congressmen, Congresswomen, and Senator). Their decisions should be based on the best interest of the nation and not based on the interest of their party’s competitive position. An important political decision is on the desk of Congress, the healthcare reforms; fifty-two days after the New Year, there is still a stalemate in Washington. There is a bipartisan healthcare reform meeting scheduled later this week by the White House, the nation will be watching a live broadcast of the politicians at work. The actions of the politicians will tell us whether they are working to win for the country or win for the party of their affiliation.

Bloger@sunlona.com

The New Year is the time to look back and review what we have accomplished as an individual, nation, and world. Also, look ahead and set goals for the next year.  Three important things that are on our mind every day are peace, prosperity, and happiness.  The majority of the Americans were interested in change in Washington, and they were successful in bringing the change during the last year. A new president was sworn-in with a vision for change, one of the political party became the majority party, and with these changes, people were expecting peace, prosperity, and happiness. We have seen the change in our foreign policy, we have shown the world that we are determined to use force to protect our nation, and at the same time we are not afraid to communicate, and negotiate with our enemies to bring peace to our nation and the world. The world has recognized the change in our political strategy and awarded our president the Noble Peace Prize. The Noble Peace prize was not only the recognition of the American President, but it was recognition of American people who were determined and brought change by electing a president who believes in peace. Last year as a nation we made history by passing the healthcare bill, and made it clear that the same healthcare service should be available to everyone in the nation, whether you are rich, poor, or powerful. Yes, we have to work hard next year to improve our economic conditions.

As an individual we are interested in peace, prosperity, and happiness. On the New Year’s Eve we need to remember that our individual goals are dependent on the national goals.  If we forget our obligations as a citizen to our nation and to the world, we will not be able to achieve our goals. We are part of an interdependent large community that is referred to as the world. The global conflicts that we are facing today are the results of inter-dependencies such as knowledge, resources (oil, gas, minerals, etc.), and ability to build destructive (military, nuclear, etc.) power. An individual new years resolution must include exercising the rights to vote, protecting constitutional rights, voting for politicians who have similar values and beliefs, standing-up against media, interest groups, and politicians that are dividing the country based on race, religion, and political affiliation, or working against the peace and prosperity. If everyone in the nation and around the world starts thinking of peace, prosperity, and happiness, one day the whole world will celebrate the New Year with peace, prosperity, and happiness.

Bloger@Sunlona.com

Corporate executive compensation has been a topic of discussion from the last few decades in the academic and research community. Corporations have ignored fair compensation policy for executives and upper level management with the argument that the over compensation is necessary to attract experienced and knowledgeable managers. The problem with this old argument is that it ignores the fact that corporate value is created by a team which includes employees, board of directors, mangers, executives, suppliers, lenders, stockholders, and other stakeholders. For years corporate board and management were able to justify and keep the corporate compensations of executive and upper level management out of the public discussion. The financial crisis of the financial service and the automobile industry, and government bailout of financial institutions and the auto industry with the tax payer’s dollar has brought the corporate compensation policy into the public domain. Government has invested in the company and the question is whether it is right for government to suggest or dictate the corporate compensation policy for its executive. Let’s make one thing clear, the government is similar to the corporation, and its stockholder is the citizens of the country who have invested in the government through tax payments. Now, if corporation A invests in corporation B, the question is whether corporation A has a right to monitor the activities including management compensation of corporation B? The answer is yes, they have the right to do so.  The government bailout has brought the corporate compensation policy into public domain because of the tax payers’ investment. It is the time for SEC to require companies to share information on corporate compensation policies in a simple and clear fashion. A full and clear disclosure of the compensation is needed. No law or accounting or non accounting rule should allow the management to hide the compensation payments from the public.

The corporate compensation is a business decision and decision should be based on the business performance. A corporation is a legal entity and the owners of the company are stockholder. The board of directors are elected by the stockholders and it is their duty to oversee the interest of the stockholders. The problem with the corporate board is most of the board members are rubber stamps of the management. They are not active participants in the corporate governance process. The first step is to streamline the board of director’s selection process with requirements for the board to make sure that they have a business education, are familiar with the business and industry, and are continuing the professional development.  Second, there should be a limit to how many companies’ boards a member can participate at one time. Third, compensation for board of directors should be based on corporate governance. That means small amount of annual compensation plus stock compensation based on the long-term performance of the company. If we address the role of the board of directors, next we will be able to focus on the management compensation. The management compensation should be based on a simple relationship between sales, earnings, and returns to the stockholders. The stockholders are the owners of the company and it is their money that is being used to generate profits. The stockholders have a right to this information in simple and clear fashion. The company needs to publish every quarter and annually how much in salaries, and bonuses were paid to the executives. Also, the company should present the relationship between the corporate compensation of executives, company’s revenues, earnings, capital utilization, and employee compensation.

Bloger@Sunlona.com