Monthly Archives: May 2010

John Gapper

Goldman Sachs‘ attempt to settle with the Securities and Exchange Commission in the Abacus case on a lesser charge than fraud, which I and Francesco Guerrera wrote about today, is a reminder of the peculiar way in which US civil securities cases are often resolved.

The standard settlement involves a defendant being fined by the SEC, and disciplined in individual cases, but “neither admitting nor denying” the allegations. The SEC thus gets a scalp and avoids a court case, while the defendant avoids a conviction.

Neither admitting nor denying has always struck me as an odd sort of resolution: similar to the Scottish verdict of not proven, which lies somewhere between guilty and not guilty. Wikipedia notes that this is sometimes known as the “not guilty and don’t do it again” verdict.

A famous example is the case against Henry Blodget, the former Merrill Lynch analyst, which was settled in 2003 with the SEC saying it had found securities fraud violations, while “Blodget neither admits nor denies these allegations, facts, conclusions, and findings.”

Mr Blodget these days runs the Business Insider set of websites and linked to our story this morning, which says something about the nature of life, although I’m not sure exactly what.

Goldman wants to settle without admitting or denying, while paying a fine likely to be in the region of hundreds of millions of dollars. Yet it does not want to have a finding of securities fraud against it even if it would not have to admit to the accusation.

Brad Hintz of Bernstein Research wrote in an extremely well-informed note to clients yesterday that Goldman would try to structure a settlement around Section 17(a)(2) of the 1933 Securities Act, which imposes liability for “negligent misstatement or omission of a material fact” rather than fraud.

This would block the potential for other parties or investors to sue it and would also mean Goldman would not have the word “fraud” hanging over it permanently.

As Mr Blodget puts it, worth a try.

John Gapper

Comparing the blockbuster Wired magazine application for the Apple iPad to other magazines on the device is faintly silly given its far greater size and ambition. You can get an idea of it from the promotional video below.

The Wired app is the closest thing the iPad yet has to a vision of how magazines could be transformed, and it has the bulk to prove it. It contains nearly half a gigabyte of data, including two clips from the new Toy Story film, and took me 10 minutes down download it over a WiFi connection.

But, as the the iPad goes on sale in nine countries outside the US – including the UK, France, Germany and Japan – the Wired app puts its competitors to shame, including GQ and Vanity Fair, two other Conde Nast titles that are more confused and less interesting.

Perhaps that accounts for the fact that Graydon Carter, Vanity Fair’s editor, sounds so unenthusiastic about his own product.

I predicted in a column on the iPad that the device’s multimedia potential would put many publishers to the test, and the magazines I have seen so far generally fail it. They look like what they are – little more than facsimiles of the print versions with the odd slideshow or video thrown in.

Doing better requires space. The Wired app takes up 544 megabytes, while Vanity Fair is 3.6mb, GQ 2.8mb, and Dwell (an interiors and architecture magazine that looks good in print but has a disappointing iPad app) 3.9mb.

Wired’s rivals are thus less than one hundredth of the size. They also display a fraction of its imagination in transforming themselves into digital artifacts.

As soon as it emerged that the Wired iPad app would cost $4.99 there was a lot of online scepticism about how noone would ever pay that much for a monthly magazine on an iPad. We shall see, but Wired itself reports that 24,000 people downloaded it in the first 24 hours.

The most impressive thing about it is the way that it re-imagines the entire magazine format by integrating words, data, graphics, photos and video into a seamless blend. It is also – in contrast to others – intuitive to navigate. Even the advertisements, complete with videos, seem interesting.

Of course, if others really do emulate it then iPad memories, which are a maximum of 64gb, are going to fill up fast.

John Gapper

To his credit, Mark Zuckerberg has responded to the outcry over privacy, including my column on the subject, by making significant changes to Facebook’s privacy policies.

The most welcome aspects of the changes, discussed by him on the Facebook blog, are that it will be far simpler for a user to control how information is shared, and these choices will apply to future Facebook services.

Facebook has also pulled back from its sleight of hand in making six types of data into “publicly available information” by reducing these to four, including taking users’ friends list out of the category.

John Gapper

By erecting a paywall around The Times and The Sunday Times online, Rupert Murdoch is once more shaking up Fleet Street and leading the way to what he hopes will be a more profitable existence. I doubt whether his heart is in it.

Continue reading “Murdoch has to become an elitist”

John Gapper

So far in the rolling global financial crisis, it is big banks – both European and American – that have caused the most trouble, but the Spanish regional savings banks are coming up fast.

The forced takeover of CajaSur, a savings bank controlled by the Roman Catholic church, by the Bank of Spain last weekend has prompted jitters about the health of the entire sector.

The cajas have unsurprisingly become overexposed to Spanish property and now their bad debts threaten to overwhelm some of them. Their condition is reminiscent of the US savings and loans, small savings banks known as thrifts which hit trouble in the recession of 1990-91.

About 750 thrifts eventually failed, so the caja crisis is nothing like as serious as yet, but it feels ominously similar in nature. The cajas, like the thrifts, became bogged down not in obscure credit derivatives but plain property loans.

My colleague Wolfgang Munchau wrote an insightful column this week on the bad debts embedded in the European banking system, from the cajas to the German landesbanks.

Since many European banks holding these loans are public sector owned or controlled, investors are rightly worried about whether they are coming clean about the bad debts. I suspect there is a lot more pain yet to come.

John Gapper

Facebook is likely to announce some privacy changes soon in response to the furore over the complexity of its privacy controls and its sharing of user information. But are they going to be enough to address all the problems?

So far, it does not look very likely.

I call in evidence Mark Zuckerberg’s op-ed piece in the Washington Post in which he places the emphasis on complexity and leaves out the more fundamental question of whether Facebook should unilaterally declare some data as “publicly available information”.

Here is Mr Zuckerberg in the Washington Post:

Simply put, many of you thought our controls were too complex. Our intention was to give you lots of granular controls; but that may not have been what many of you wanted. We just missed the mark . . . We have heard the feedback. There needs to be a simpler way to control your information. In the coming weeks, we will add privacy controls that are much simpler to use.

And here he is in an email to the blogger Robert Scoble:

I know we’ve made a bunch of mistakes, but my hope at the end of this is that the service ends up in a better place and that people understand that our intentions are in the right place and we respond to the feedback from the people we serve.

As Rachel Sklar points out, the line that Facebook was just a bit enthusiastic and has gone too fast rather than too far, is not the same as the company committing itself to a fundamental change in approach.

In addition to reducing the complexity of its controls, I would like to see two things:

First, a change in its approach to using “opt-out” rather than “opt-in” privacy controls to push users toward sharing. As long as it sticks with the first,  many users will be caught sharing things they did not intend to because they are not concentrating hard enough.

Second, ending the idea of some information being unilaterally transformed into being “publicly available” without any choice. Mr Zuckerberg may be hinting at this by writing “we will also give you an easy way to turn off all third-party services” but I wait to see.

John Gapper

The wave of suicides at the vast plant near Shenzhen owned by Foxconn, the Taiwan contract manufacturer, where 300,000 workers are employed, raises questions about the sustainability of China’s use of migrant workers from rural areas.

The FT was allowed unusual access inside the Foxconn plant in Longhua, which has in the past been kept out of view of reporters, and Kathrin Hille’s video interviews with Foxconn employees, as well as the company’s spokesman, are fascinating.

These, for example, are the thoughts of Lu Pengguo, a logistics worker:

“At work, there’s pressure all the time. Sometimes, it all feels so pointless.  Then sometimes I feel really tired, annoyed, that I don’t want to work here anymore. . . . On our production line we do the same thing  every day, over and over again, day after day, month after month, year after year. It makes me feel drained.”

Perhaps this feeling of repetition, since many people work at the plant for long periods to save enough to return to their home cities and towns, is a factor in the suicides. Foxconn admits that it is scrambling to understand and to halt the deaths.

As Kathrin points out, the first generation of migrants from rural areas were prepared to put up with a lot to earn money in coastal cities but the younger generation is tiring of the working conditions.

It is not the first time that Foxconn has faced public pressure over the plant, where most Apple iPods and iPhones, as well as electronic goods for Sony and Dell. After a critical story about working conditions in 2006, Apple dispatched a team of inspectors there.

Apple’s audit found that:

The manufacturing facility supports over 200,000 employees (Apple uses less than 15% of that capacity) and has the services you’d expect in a medium city. The campus includes factories, employee housing, banks, a post office, a hospital, supermarkets, and a variety of recreational facilities including soccer fields, a swimming pool, TV lounges and Internet cafes . . .

We found no instances of forced overtime . . . We did, however, find that employees worked longer hours than permitted by our Code of Conduct, which limits normal workweeks to 60 hours and requires at least one day off each week. We  . . .  found that the weekly limit was exceeded 35 per cent of the time and employees worked more than six consecutive days 25 per cent of the time.

That is an awful lot of work, repeated “month after month, year after year”.

John Gapper

The news that Facebook, MySpace and other social networking sites have been (unintentionally) sending some user details to advertisers adds to my growing sense that the companies either do not place a high enough value on privacy or are not careful enough about it.

It follows Google’s disclosure that it accidentally picked up personal information from WiFi networks while filming for its Street View service.

In neither case did the companies intend to do wrong but they certainly seem to have been careless about gathering information and the use they made of it. Facebook and MySpace have now tried to correct the loophole, according to the Wall Street Journal.

When controversy blew up about its privacy policies this month, Facebook emphasised to me that none of the personal data it held were shared with advertisers. It now transpires that some were, although there is not evidence of advertisers noticing.

Facebook’s privacy policy includes this assurance:

We don’t share your information with advertisers without your consent . . . For example, we might use your interest in soccer to show you ads for soccer equipment, but we do not tell the soccer equipment company who you are.

Here is the Journal story:

Facebook, MySpace and several other social-networking sites have been sending data to advertising companies that could be used to find consumers’ names and other personal details, despite promises they don’t share such information without consent.

The practice, which most of the companies defended, sends user names or ID numbers tied to personal profiles being viewed when users click on ads. After questions were raised by The Wall Street Journal, Facebook and MySpace moved to make changes.

My sense is that Silicon Valley still does not understand the dangerousness of the path it is treading and the likely repercussions if it carries on this way.

In fact, it reminds me of how Wall Street behaved in the immediate aftermath of the financial crisis, without understanding what might result. This week, the Senate passed a 1,200 financial reform bill with both bad and good elements.

Silicon Valley, wake up.

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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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