Monday, November 29, 2010

Working (and buying!) for Hanes

The clip is self-explanatory. And these are not fictional characters. They are REAL. While child labor is illegal is most countries, it is also widespread in the garment industry in Southeast Asia and Central America.
Most people agree that there is something wrong with these practices. But the question is whether Hanes is in any way to blame for the situation of Halima and many other children working in these factories. It is important to remember that these factories are suppliers and subcontractors of Hanes (that is, technically, these workers are not Hanes' employees).
As a customer, do this sort of clips change your decision-making process about shopping for Hanes clothing? Do you think about these children when you have Hanes products in your hands?
As you watch this clip, think also about possible solutions to the problem from the perspective of multinational corporations.

Saturday, November 20, 2010

More on Insider Trading

I am sorry that we could not finish our great discussion about insider trading yesterday. But we can profit from this article in the WSJ today (link here).
Short summary: Federal prosecutors in New York, the FBI and the Securities and Exchange Commission are conducting a three-year investigation on insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation. Nothing new. The SEC has been investigating leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. Preet Bharara, the Manhattan U.S. Attorney, recently said insider trading is a "top criminal priority" for his office, adding: "Illegal insider trading is rampant and may even be on the rise." Apparently, multiple insider-trading rings has recently reaped illegal profits totaling tens of millions of dollars. One of the focus of the the investigations is the development of new ways to pass non-public information to traders through independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.
John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation: "Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."
The email, which Mr. Kinnucan confirms writing, was addressed to traders such as hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management.
Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms improperly gained nonpublic information about pending health-care, technology and other merger deals.
The SEC sent subpoenas last fall to more than 30 hedge funds and other investors. Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. Another important case is the MedImmune Inc.'s takeover by AstraZeneca Plc in 2007: MedImmune shares jumped 18% on Apr. 23, 2007, the day the deal was announced.
The question is, once again, about the wrongness of insider trading and whether it would be more efficient and good for the economy to legalize it, that is to decriminalize insider trading and allow each individual corporations to specify what sort of inside information can be traded on (the link to the WSJ article discussed in the clip we watched yesterday is here).

Saturday, November 13, 2010

Profit Sharing and Corporate Governance

The Argentina’s government is pushing a bill that would require companies to distribute 10 percent of profits to employees. Business leaders have fiercely reacted to the project, as they think it violates property rights and may undermine investment in South America’s second-biggest economy.
The government says this bill would allow employees to benefit from the surging profits at banks and other industries but opponents say it would dissuade companies from expanding and adding jobs. Companies may be further discouraged from putting more money into Argentina if this bill passes, said Bertrand Delgado, an economist at Roubini Global Economics LLC in New York.
The proposal, which opposition leaders said they can support, comes as banks, telecommunications companies and food producers benefit from the country’s economic growth. Argentina’s economy will grow 9 percent this year, the most since 2005, according to the central bank’s forecast, after 0.9 percent growth last year.
The plan may boost trade union support for the government, which cites similar legislation in countries such as Mexico, where companies have to share 10 percent of their profits, as well as laws in Brazil, Chile and Peru. However, the bill “clashes with the constitutional principles of property rights,” according to the Argentine Industrial Union (which represents the country’s biggest companies).
In response, advocates of this proposal says that it will bring more investment: "What could be a better advertisement for our country than showing the high rates of profitability that companies are having?” Profits at Argentine banks rose 43 percent in the first eight months of the year to 6.68 billion pesos, according to an Oct. 21 report by the central bank. Last year, banks profits rose 66 percent to 7.92 billion pesos. Telecom Argentina SA, the country’s second-largest telephone company, said profit rose 47 percent in the third quarter from a year earlier on higher sales of Internet and wireless services.
Another controversial issue that pertains to the topic we discuss this week is that the government's project also aims to give unions and workers the right to examine their employers’ accounting to ensure that they’re getting a fair share of profits. That would create an untenable situation in which workers will try to “co- administer” companies, said Santisteban, of the importers’ chamber. Companies don’t “want to have a discussion with unions about projects where they put capital at risk,” he said. The Industrial Union wants to modify the bill so that unions, which represent about 80 percent of Argentina’s registered workers, can’t view the companies’ books or bring up the issue of profit sharing during annual wage negotiations. The profit-sharing requirement would initially apply only to companies with at least 300 employees. It would eventually be expanded to all businesses that meet a certain level of profitability, with the details to be determined by a committee of government officials, union members and business executives.
The leader of the General Labor Confederation, the country’s biggest union, urged lawmakers to approve what he called a “revolutionary bill”. “Companies have never earned so much money as they do now,” Moyano said. Eduardo Gutierrez, president of Grupo Farallon, a Buenos Aires-based construction company that employees 600 workers, said in an interview that he doesn’t want to be forced to share his earnings.
The question is the one we discussed yesterday in class, but here you have a clear example of a conflict between stockholders and employees over the right to control and the right to profits. The clip is in Spanish without subtitles, but you can read newspaper articles covering this issue here, here, and here. There is also a famous Naomi Klein's movie, The Take, with English subtitles, available in Youtube (click here).

Friday, November 5, 2010

Subliminal Advertising and Freedom of Speech

Is there anything (morally) wrong with this? Is this an example of subliminal advertising (regardless of the law)? Why do people complain about it? As we usually say, it does not really matter whether these practices are legally permitted or prohibited. But assuming that these practices are prohibited, do they entail a violation of freedom of speech? Can subliminal advertising give us reasons to buy or not to buy a product? Should it be demonstrated that these messages cause us to act one way or the other? WHY?