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Monday, September 12, 2011

Fiscal Training-Wheels for the E.U.

The government of the E.U. state of Greece announced on September 11, 2011 that its cabinet had decided to impose a new property tax to cover a 2 billion euro ($2.7 billion) projected revenue shortfall for the year. The government expected the state to meet its deficit goals of 17.1 billion euros (8.2% of GDP) in 2011 and 14.9 billion in 2012. Earlier in September, talks between the state government and the E.U. Commission, the European Central Bank, and the International Monetary Fund had broken down in a dispute over whether Greece had done enough to meet its deficit targets. Pressure to assuage the “troika” amid popular protests in Greece apparently trumped questions on the legitimacy of a tax increase enacted by a cabinet without the approval of the state legislature.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Sunday, September 11, 2011

Corporate Federalism: AOL

Citing twelve past and present AOL employees, the Wall Street Journal characterizes AOL as a “culture of clashing fiefs and personalities created by a rapid series of acquisitions that haven’t jelled.” Just in managing the likes of Michael Arrington and Arianna Huffington, Tim Armstrong has had his hands full as CEO. Both Arrington and Huffington have been streadfast defenders of editorial independence in their respective units, even as Arrington has started a venture capital firm partly financed by AOL to invest in tech firms even as Arrington’s division at AOL, TechCrunch, writes on technology firms. The problems for AOL go beyond acquiescing in a structural conflict of interest of TechCrunch writing on particular tech companies while investing in some of them but not others. The Journal cites a person familiar with AOL as saying that Armstrong “had a macro vision that was right but didn’t have the right plan to implement it.”

In terms of corporate governance and leadership, vision is determined or decided on by a board of directors while the CEO is charged with devising and implementing a plan or strategy based on the vision. Too often, the vision is associated with the CEO simply because he or she enunciates it. Selling the vision is perhaps better handed by the president, who ideally presides over the management (i.e., representing the board). Even if the CEO is tasked with coming up with and selling a vision, he or she is better suited as chief executive to formulating and implementing a strategy or plan.

At AOL, the board should have focused on changing the corporate vision (and holding the management accountable on devising and implementing a strategy), while Tim Armstrong should have focused less on vision and more on coming up with a better strategy. At some level, the clash of egos that is involved in integrating or coordinating acquired businesses that had been stand-alone is itself a formidable task for any CEO. Reconciling or constraining previously-autonomous editors in the interest of corporate coordination without creating conflicts of interest is a difficult task. Personalities can exacerbate the difficulty involved in the turf wars.

AOL might be a good candidate for a federal system of governance, wherein publishing units need some autonomy from the pressures of corporate coordination. In such a system, each division or acquisition is like a semi-sovereign state with some autonomy from the general government. Editors at TechCrunch and the Huffington Post could use this limited autonomy to protect their respective publishing units from being swayed by financial interests either of another division or AOL as a whole. At the same time, AOL’s enumerated powers could give it the ability to achieve synergy from the otherwise disparate divisions. These domains should be such that conflicts of interest are obviated.

The key to such a corporate federal system of governance would be having a “third party” within the company or perhaps consisting of outside directors to hear contested cases of division or company over-reach. It could be that such a judiciary consists of an equal number from headquarters and the divisions, or of outsiders who are not even on the board—though the problem of aligning incentives to the long-term interest of the company would have to be addressed. 

The federation form—similar to the Japanese conglomerate “family” of businesses centered around a banking division though with each division having some autonomy from headquarter—is perhaps ideally suited to a publishing company in which pressure exists to tailor articles to particular companies favored financially by a division or the publishing company as a whole. In other words, reconciling editorial freedom (and credibility) with the synergy possible from corporate coordination (otherwise why make the acquisitions in the first place?) may be well-suited to the federal form wherein the parts and whole each of some areas of autonomy from the other. The limited autonomy itself must be in the stockholders’ long-term financial interest; this is not difficult, as sacrificing editorial freedom for immediate financial gain is typically detrimental in the long run. AOL’s vision should include such matters as governance structure as long as the company retains separate though related publishing enterprises.


Jessica E. Vascellaro and Emily Steel, “Culture Clashes Tear at AOL,” Wall Street Journal, September 10-11, 2011. http://online.wsj.com/article/SB10001424053111904836104576558993970961586.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Media Hype: September 11th

Before hurricane Irene went over New York City, the storm had been downgraded to a tropical storm. The American news networks were by then too invested in the storyline of Manhattan being flooded to report the downgrade. Instead, the reporters were in high gear, showing even just slight flooding off from beach areas. The story was hyped, and viewers bought into it hook, line and stinker.

The hype for the tenth anniversary of September 11, 2001 began nearly a week before the big day. Not to be undone by the day falling on a Sunday, when most people are not glued to the news networks, the media simply extended the anniversary back to include the day before—hence contriving an anniversary weekend. Even so, people are less invested in the news on weekends. Fortunately, the media could make use of a report by the U.S. Government of security concerns on the anniversary. I found myself wondering if the report had been fabricated simply to counter the fact that the anniversary was to fall on a Sunday and thus was in need of an extra push to garner the desired attention.

Early Saturday evening on September 10, 2011, I found myself developing a rash of utter disgust while briefly watching the beginning of a car race on ABC. The race itself was besides the point, it would seem. The infield was populated with army troops decked out in their battle-field garb as if they were to head immediately thereafter to Afghanistan. Every spectator in the stands was waving a miniature American flag. A singer looking strangely happy to be singing was singing a sad song “of remembrance.”  Then a minister, also not too sad about receiving so much attention, said a solemn prayer presumably for others. Fireworks followed—as if appropriate for a sad day of remembrance of many innocent who were tragically killed. The show disgusted me. I do not know if the festivities ever got to the race, as I turned off the television at the fireworks stage and turned to exercise.

In thinking about the spectacle as I was exercising, I remembered a big sign that read, “WE WILL NEVER FORGET.” I thought of Pearl Harbor, a day which no longer lives in infamy for many Americans under 30 or even 40 even though it was a pivotal event in WWII and thus world history. Besides the relative lack of importance accorded to history itself in American culture, FDR’s claim has been effectively relegated by the importance given to 9/11 even though the latter is not, in my view, as important historically for the world as Pearl Harbor. Had the United States not entered WWII, Europe and Asia would probably look very different. So it is highly probable that either another incident deemed to be important or the sheer passage of a new century will wash away the claim that our time is the most important—that no one following us would ever attempt to relegate our event.

It may be that human beings are hard-wired to presume that we are the center of the universe. Certainly the Catholic Church used whatever theological authority the clerics presumed they had to enforce Earth being said to exist at the center of the physical universe. Similarly, it is incredibly presumptuous to claim that ground zero, which is all too subject to hype ten years later, should never be forgotten. Interestingly, sacred space has a subtle tendency to dissipate with the passage of time. Perhaps we are not as good as we think at deeming things sacred because we are actually deeming ourselves as such.

At the very least, our news media and elected representatives have a vested interest in drawing attention and creating patriotic moments (and images)—particularly in an election year. If I am correct, we, the American people, have been duped again by being suckered in to a contrived social reality by appeals to our emotions. To be sure, the death of thousands of innocent victims is sad, but by ten years out the leader and many of his colleagues had been killed or arrested. Perhaps the lesson is that it is time we move on. As 9/11 itself evinces, life is too short to waste a warm sunny weekend on remembering death. Let the dead bury the dead.

Lest we forget: forgive us our sins, as we forgive those who sin against us. Saying we will never forget is really a coded message that we will never forgive. In other words, saying “WE WILL NEVER FORGET” is actually to wield a club of sorts. Doing so makes us hypocrites rather than somehow virtuous. Forgiveness is about the left hand not knowing what the right hand is doing—not refusing to forget. We would do better were we to ignore the media and politicians when they insist on drawing attention to themselves. Our time is too valuable, as life is short, yet we and the societal opinion leaders we listen to are far too presumptuous in what we designate as important. This is the real lesson on this “anniversary.” Sadly, most Americans are probably too caught up with the festivities to notice.