Monthly Archives: June 2009

John Gapper

I went to Bernie Madoff’s sentencing today and wrote this FT piece:

It was, taken literally, an absurd jail sentence: one of more than life, one reaching well into the grave. Yet Judge Denny Chin on Monday ignored the plea of Bernard Madoff’s lawyer to give him a shorter term on the grounds that, at 71, his life expectancy is about a dozen years and instead threw the sentencing book at him.

The handing down of the 150-year sentence was a moment of breathtaking legal theatre at the end of a hearing that was both mournful and moving, as nine victims of Mr Madoff’s Ponzi scheme stood to testify to the suffering he had caused. Their lamentations were accompanied by the sound of others crying softly in their seats.

Ira Sorkin, Mr Madoff’s lawyer, did his best during the 90-minute hearing to argue that Mr Madoff was sorry for his crimes, had co-operated with the authorities and should not suffer “vengeance”. Yet, after the victims had spoken, his argument that his client should be treated gently sounded hollow.

Mr Madoff put on a more effective display of remorse than at the hearing in March when he had woodenly pleaded guilty to fraud and other charges. This time, he turned deliberately to face his victims lining the seats at the back of the Manhattan courtroom to say: “I am sorry. I know it does not help you.”

You can read the rest of the article here and add your comments below.

John Gapper

I cannot help thinking that the decision to expand the number of nominees for the best film Oscar is an ominous error. It smacks of being one of those decisions made in the producer interests that is dressed up as being for the benefit of consumers.

The Academy of Motion Picture Arts & Sciences firmly denies that the move, unveiled to surprise in Hollywood on Wednesday, was a result of pressure from studios unhappy at the way big box office films have been shut out of nominations in recent years.

However, as Variety noted, there was a hint of it from Sid Ganis, the president of the Academy, in his comment that an expanded nomination list would be “less cloistered”:

Ganis’ “less cloistered” observation was a deftly phrased acknowledgment that the org has been charged in recent years with being elitist in some of its choices. After the 2008 noms came out, many media pundits, industry workers and film fans bemoaned the omission of such crowd-pleasing films as The Dark Knight and Wall-E.

Studios and producers support the idea of expanding the list because there is more chance of a film getting an Oscar nomination, which is a prize in itself. But it will downgrade the Oscar nomination, confuse the public and perhaps lengthen still further the rambling awards ceremony.

I wonder whether there is an opportunity here for the Golden Globes awards, which are organised by the much-mocked Hollywood Foreign Press Association. The Globes have been rising in status after years during which they were regarded by studios as a bit of a joke.

While the Academy dilute one of the basic principles of the Oscars – the nomination list of five – for its own purposes, the Golden Globes could gain kudos by sticking with it. I trust that the HFPA will resist the temptation to fall in line with the Academy.

John Gapper

My column in the FT this week is on what Steve Jobs can teach US companies:

Steve Jobs is returning to his post as chief executive of Apple, following a liver transplant, to some good news. On Sunday, Apple’s iPhone 3GS, the latest version of its device, passed 1m sales in three days.

Mr Jobs permitted himself a boast that “customers are voting and the iPhone is winning”. This was aimed at Palm’s Pre, which is the best effort to match the iPhone, but trails it in one vital regard.

Owners of iPhones can choose among 35,000 applications, most built by other companies, that run on the phones. Competitors including Palm and Google have not yet matched this creative alliance.

The fact that Apple persuaded others to rally round has helped to shield it from the margin squeeze in the personal computer and consumer electronics industries. It has become the hub of a creative network.

Lots of businesses are suffering in the recession but that masks a longer-term trend that only relatively few – Apple among them – have managed to buck. This is a squeeze imposed by intensifying competition across many industries.

Chief executives sometimes bemoan the passing of the old days, when the pace of change was slower and they were under less pressure. It sounds like self-delusion but they are correct: it is harder to make a good return than it used to be.

Evidence for this comes from some intriguing research into US corporate performance by John Hagel and John Seely Brown of Deloitte’s Centre for the Edge. They found that the return on assets at US companies has fallen steadily since 1965, from about 4 per cent to 1 per cent.

Consumers have done well out of this squeeze since they can get more for their money, while employees with scarce skills have been able to get more of the pie. The shareholders (and less-skilled workers) have been served thinner slices.

The notion that companies are suffering is counterintuitive since corporate profits reached an all-time high as a percentage of US gross domestic product in 2006, at the expense of wages. But this rosy picture for companies and investors masks an underlying deterioration in corporate performance.

You can read the rest here and comment below.

John Gapper

Add one more item to the advantages of owning a private jet, or having access to one. The New York Times points out that Steve Jobs, chief executive of Apple, could have registered on several waiting lists for liver transplants around the US because he was able to fly on short notice to any city.

In practice, we do not know why Mr Jobs ended up having a liver transplant in Tennessee – or indeed why he had one at all, although it presumably relates to the bout of pancreatic cancer for which he had surgery in 2004. Nor do we know how he got to Tennessee from California.

Organs are allocated to sick patients on the basis of need but there turn out to be advantages to being able to fly around the US, or the world, at will:

It is even conceivable that someone could go to the time and expense of registering for the waiting lists of several transplant centers around the country.

“If you had access to a jet and had six hours to get anywhere in the country, you’d have a wide choice of programs,” said Dr. Michael Porayko, the medical director of liver transplants at Vanderbilt University, one of the Tennessee centers that has said it did not treat Mr. Jobs.

Mr Jobs appears to have recovered well enough to return to Apple a few days ahead of schedule. He has the successful launch of the iPhone 3GS to aid his convalescence.

John Gapper

This is sad news. Eastman Kodak is ending production of Kodachrome, its colour film brand, because we have all gone digital. This recalls, of course, the Paul Simon song of the same name:

Kodachrome
They give us those nice bright colours
They give us the greens of summers
Makes you think all the world’s a sunny day, Oh yeah
I got a Nikon camera
I love to take a photograph
So mama don’t take my Kodachrome away

I can see the necessity of ending mass production of Kodachrome, but I wonder whether there is not a niche analogue business there, along the lines of Polaroid and vinyl records.

The New York Times reported last month on the efforts of an Austrian entrepreneur to revive Polaroid film. Instant film is what the brand still stands for – I always thought the attempt to put the Polaroid name on televisions lacked credibility:

“This project is about building a very interesting business to last for at least another decade,” said Florian Kaps, the Austrian entrepreneur behind the effort. “It is about the importance of analog aspects in a more and more digital world.”

Meanwhile, there is still a thriving niche business in making vinyl records. The FT noted last year that Portalspace Records had bought EMI’s former vinyl record factory in Hayes, west London in order to keep on pressing discs.

I can read the writing on the wall, as Paul Simon sung in 1973, but surely someone can come up with a use for Kodachrome?

John Gapper

I have a written a column for the FT this weekend on Twitter and Iran:

Technology gets a bad rap in the old media. In books and films, it is often the machinery used by governments to crush individuality.

In 1984, George Orwell’s book about an imagined police state, the Ministry of Love used telescreens to monitor the inhabitants of Oceania: “The smallest thing could give you away. A nervous tic, an unconscious look of anxiety, a habit of muttering to yourself – anything that carried with it the suggestion of abnormality, of having something to hide.”

In The Conversation, Francis Ford Coppola’s 1974 film, Gene Hackman played a surveillance expert drawn into a murder plot as he eavesdrops on a young couple. Hackman reappeared in Enemy of the State, a 1998 film about a rogue circle of government agents using satellites and phone-monitoring software to hunt down and kill people.

A funny thing happened on the way to the digital dystopia. Far from being a tool for repression, the internet has become a means by which people shake off state censorship.

The internet has pushed governments in undemocratic and semi-democratic countries on to the defensive. They used to be able to control the flow of information on televison or in newspapers with relative ease. The ability of anyone with a mobile phone or a video camera to broadcast at will has confounded them.

Twitter, the 140-character message social network, is the latest internet phenomenon to thrust power into the hands of the citizenry. In Iran, it was the tinderbox that fanned the spark of revolt among supporters of Mir-Hossein Moussavi, the defeated presidential candidate, into rallies and protests against the election result.

But do not count out the repressive uses of technology. Every Twitter follower and Facebook user who signs on for updates about popular protests in Iran or China, or uploads videos to YouTube, signals his or her revolutionary sympathies. That is not only news for free-thinkers but also potential intelligence for Big Brother.

You can read the rest of the article here and comment below.

John Gapper

My column in the FT this week is on drugs and the developing world:

Giving products away free, from browsers to newspaper articles, is commonplace in the technology and media industries. The trend has now spread to vaccines.

Pharmaceuticals companies, scarred by years of losing the public relations battle to campaigners over the price of HIV/Aids drugs in Africa, are eager not to be caught out by swine flu.

Andrew Witty, chief executive of GlaxoSmithKline, has offered to donate 50m doses of GSK’s planned swine flu vaccine to the World Heath Organisation. He has caught the public mood: Margaret Chan, WHO director-general, has urged “solidarity” with poor countries over the H1N1 flu virus.

Mr Witty and Ms Chan have forced Daniel Vasella, chief executive of Novartis, to defend the profit motive. He told the FT this week that Novartis did not want to follow the GSK example by giving away doses of its planned vaccine because “if you want to make production sustainable, you have to create financial incentives”.

Mr Vasella, who is normally the most public relations-adept of executives, has placed himself in an awkward corner, but he is right. For reasons that go beyond the general value of unfettered markets and the price mechanism, cheap is a better price than free for new vaccines in the developing world.

You can read the rest here and comment below.

John Gapper

The American consumer should be paying $10 per gallon for petrol, instead of the current average of $2.62. So says Elon Musk, the chairman and chief executive of Tesla Motors, the Silicon Valley company that makes the Roadster electric car.

Mr Musk reckons that is the price that would compensate for all the externalities of burning fossil fuel, polluting the atmosphere, warming the oceans etc. He made his calculation this morning at the Wired magazine business conference in New York, which I attended.

“We are not paying for the true cost of gas at the pump. It is a tragedy of the commons problem. No-one is explicitly paying for the costs of the oceans and the atmosphere.”

Expensive petrol would suit Mr Musk fine since his company currently makes the only pure electric car in production. General Motors is trying to catch up with the Chevrolet Volt, a car that will be powered by electricity, with a back-up petrol engine for when the batteries run out.

Incidentally, James Surowiecki suggests (via Felix Salmon) a federal petrol tax that rises when the price of oil falls and vice versa, to provide stability for consumers and manufacturers.

Mr Musk, a co-founder of PayPal, is nothing if not ambitious and says he has his eye on some of the plants that may be left vacant by the downsizing of Detroit.

“When the mess gets sorted out like to have a conversation with the car czar and say I would like some of those plants.”

In conversation with Chris Anderson, the editor-in-chief of Wired, Mr Musk was adamant that US companies should follow the example of German auto companies such as BMW and Daimler in having engineers at the helm, rather than financial specialists.

“You really need the product guys running a product company. The path to the CEO’s office should not be through the CFO’s office, it should be through engineering and design.”

And what are the job titles of Mr Musk, an engineer, at Tesla? Chairman, chief executive and product architect. That should just about cover it.

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This blog is mainly about business and strategy and how and why people who run companies take the decisions that they do.

Most of the time, John Gapper is in New York and Andrew Hill is in London. We occasionally debate business issues between us, but your comments and criticism are welcome.




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About John and Andrew

John Gapper is an associate editor and the chief business commentator of the FT. He has worked for the FT since 1987, covering labour relations, banking and the media. He is co-author, with Nicholas Denton, of All That Glitters, an account of the collapse of Barings in 1995.

Andrew Hill is an associate editor and the management editor of the FT. He is a former City editor, financial editor, comment and analysis editor, New York bureau chief, foreign news editor and correspondent in Brussels and Milan.

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