British Corporate Fitness: Staying On the Treadmill is a Great Way to Avoid a Scalping

Publicly listed companies in the UK are no longer required to report earnings on a quarterly basis, highlighting an interesting cultural gap between Great Britain and America.  Her Majesty’s investors see it like this: “A desire to not disappoint the markets, when you are speaking to the markets every three months, will inevitably lead to the business making short-term decisions to the detriment of long-term shareholders.” Yanks see it like this: Enron.  Under the new rules, companies can choose whether they stay on the “treadmill of quarterly reporting” or get lazy (I am an American so here you can see the cultural gap).  And guess what?  Lazy is nice: “In a December poll of Britain’s 350 biggest companies by the ICSA, a trade body, and the Financial Times, 20 percent of respondents said they would scrap the practice, while 23 percent said they would continue and 53 percent were undecided.”  Speaking of British corporate fitness: UK software company Autonomy (alt) is “at the centre of massive fraud allegations [regarding] booked revenues from uncompleted transactions at the end of a number of quarters to meet sales targets.”  Founder Mike Lynch argues “the international accounting rules under which the UK company operated required it to recognise sales to resellers when they occurred, even if no sale had been made to the ultimate customer.”  Which is basically accrual accounting, a cornerstone of both GAAP and IFRS.  However there are some criteria which must be met before Autonomy can recognize sales as revenues, such as 1) risks and rewards have been transferred from the seller to the buyer, 2) collection of payment is reasonably assured etc. etc.  Then again, their name is Autonomy…we can’t reasonably expect them to adhere to some outsider’s rules.  All of this is really great news for the UK’s Financial Conduct Authority who is looking for their first big scalp (alt).  They really thought they had it last year when they arrested hedge fund manager Carl Linderum for insider trading.  Turns out he was innocent, but his $100mn fund went bankrupt anyway.  While the British FCA has only 23 convictions totaling $9mn since 2009, the American SEC has more than 50 scalps in its belt in each of the past 3 years and some individual cases exceed hundreds of millions of dollars.  This is probably due to two things: the SEC has more people to scalp and the Patriot Act is basically their golden tomahawk.  A former FCA official says that “high-profile raids and arrests are a key component of the strategy – even if they don’t yield convictions.”  Nice.

Boeing To Stay in Puget Sound

The Machinists Union narrowly approved (24,000 votes cast; passed by 600 votes) a “new” contract with Boeing on Friday, guaranteeing an estimated 20,000 jobs and $20bn in economic activity for the Puget Sound.  Union workers had originally rejected Boeing’s proposal due to plans for freezing the employees’ pension and offering individual 401(k) accounts to new hires.  Boeing played good cop (final deal: $5,000 bonus for employees in 2020, dental coverage and tweaked wages) bad cop (apparently they were considering 54 other locations in 2 states; pension still turns into 401k), and I’ll let you decide which cop worked best.  Boeing’s warning about leaving the State probably wasn’t a bluff, but consider this: “about 30 percent of the [Aerospace and Defense Industry’s] total engineering work force will be eligible to [retire] in the next five years, according to a study by Deloitte.”  Also, while Boeing will receive about $8.7bn in tax incentives from Washington State, building a new factory in another state may have cost Boeing about $10bn.  Meanwhile, Ed Murray, the new Mayor of Seattle, has signed an executive order to pay all city employees a minimum wage of $15/hour.  Murray should have an easy time with this one since the new requirement will only affect the 6% of city employees not already making more than $15/hour.

Good News: You Are Not (Maybe) A Psychopath (No alternate you psycho)

A professor at Oxford University finds that “readers of the Financial Times had more psychopathic traits than readers of other newspapers and that the profession with the most psychopaths was financial services.”

USA: Service Sector Growth Slows in December

The Institute for Supply Management: “Services index fell to 53 last month from 53.9 in November.  The reading was below expectations for a reading of 54.5…the read on new orders showed contraction for the first time since July 2009…it dropped to 49.4 in December from 56.4.”

USA: Mapping Poverty in America

The New York Times’ great interactive/disturbing map of “where the poor live.”  In other news, “drones will soon take to the skies across the United States in federally approved tests that are meant to clear the way for the commercial use of unmanned aircraft.”

USA: American Exceptionalism

Apparently America isn’t special; its per-capita income is just loud.


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