Finance and Economic

The majority of people in a new poll say the Hewlett-Packard Co. board was right to force CEO Mark Hurd to resign over an ethics scandal.

Of the respondents, 55 percent said HP (NYSE: HPQ) did the right thing in forcing Hurd to resign, while 33 percent said he should not have been forced out. The remainder were undecided.

Hurd spent 25 years in Dayton with NCR Corp. (NYSE: NCR) before leaving to join HP in 2005. While at NCR, he also headed up the data warehouse division that was spun off into Miami Township-based Teradata Corp. (NYSE: TDC).

One person who voted in the survey said, "CEO's today, as never before, must demonstrate through their behavior exemplary values; integrity, responsibility and accountability to name a few."

Another person took the opposite view, saying "The HP board needs to be replaced. They failed on Fiorino, they failed on Dunn, the other board member who resigned, and now we are led to believe they failed on Hurd. No one knows exactly what Hurd did anyway. And the company lost $8 billion in value on the stock drop?"

In further breaking down the results, 47 percent said they agreed with what HP did because CEO's should be held to the same standard as other employees. However, 28 percent said he should only have been reprimanded.

"I don't think we have the whole story. It is possible the Board wanted him out and this was a objective means to achieve their goal," said another person who commented on the poll.

The BizPulse Survey ran Aug. 11 to Aug. 14 on the Dayton Business Journal Web site and had 186 responses. While not a scientific poll, it reveals the attitude of the business community in the days following the announcement of Hurd's departure.

For more on this story, including Hurd's full connections to Dayton through the years, click the following DBJ stories in our continuing coverage:

Mark Hurd - Rise and fall of a CEO

Report: Mark Hurd agrees to pay settlement

Hewlett-Packard stock plummets on CEO scandal

HP CEO Hurd to get $12M severance payout

Full text of Mark Hurd's separation agreement with HP

HP CEO Mark Hurd resigns amid sexual harassment scandal

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The Denver area has made “discernible progress” in recovering from the recession, with two straight quarters of economic growth, “but that growth has yet to be translated into jobs,” says Mark Muro, co-author of the latest quarterly “Mountain Monitor” report on the Intermountain West’s economy from the Brookings Institution and the University of Nevada at Las Vegas.

Denver was the only metro area in the region where the unemployment rate at the end of the year’s first quarter wasn’t higher than a year earlier, the report notes.

But overall, the study says the cities of Colorado and neighboring mountain states are “at once recovering and still struggling.”

“For the first time in three decades, the region finds itself unable to lead the nation out of a recession and [is] forced into a period of serious questioning about the sources of future growth with further federal stimulus unlikely,” the study says. “In these new, uncharted territories, certain corners of the Mountain West face the prospect of being left behind the rest of the country and virtually all of the region’s metropolitan areas have to re-evaluate the basics of the Western growth model.”

The quarterly Mountain Monitor analyzes data on jobs, output, home prices and foreclosure rates for the Intermountain West’s metro areas. The most recent report covers the first quarter.

Among the report’s key negative findings for the region:

• “The 10 largest Intermountain West metropolitan areas made little progress towards recovery between the last quarter of 2009 and the first quarter of 2010 as steeper-than-before employment declines weighed on the region low fee payday loans.”

• “Despite growing [output] by 1.1 percent this quarter, the Intermountain West’s large metros suffered a further employment setback of 0.6 percent” from the previous quarter.

• “Employment recovery eludes the entire region, and not a single metro [in the mountain states] made progress between the fourth quarter of 2009 and the first quarter of 2010 in recouping jobs lost to the recession.”

• “Home prices … remain depressed [in the region]. This quarter’s annualized price depreciations were steeper than last’s in every metro.”

“Reversing earlier gains, … the region’s overhang of real estate-owned properties — foreclosed properties that failed to sell at auction and are now owned by lenders — increased during the first quarter of 2010 and remains extremely high.”

On the other hand, the report says that “all but two of the region’s metros — Albuquerque and Las Vegas — grew [in terms of “gross metropolitan product”] at a faster clip than did the nation or large metros on average. Relatively high growth rates in Denver, Ogden [Utah], Phoenix, and Tucson [Ariz.] place these metros into the top performance [20 percent] nationally.”

The report covers Colorado as well as Arizona, Idaho, Nevada, New Mexico, Utah and Wyoming.

Click here for the full report.

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One would think that the merger of United and Continental airlines, a marriage that would create the world’s largest carrier, would be enough to rouse shareholders knocked unconscious by years of losses. But while the companies’ shares both gained more than 2% following Monday’s announcement, the news still held all the excitement and economic potential of a two-family garage sale.

That’s not to say that the airlines, and the industry overall, aren’t in desperate need of consolidation should they ever hope to earn a consistent profit. It’s just that the joining of two companies with rickety balance sheets, below-investment-grade bond ratings and a dubious history of making money is hardly the type of event that gets the investment world leaping from its Herman Miller chairs.

"It’s not the kind of behemoth that it would have looked like 20 years ago," says Robert Poole, director of transportation policy at the non-partisan Reason Foundation. "Airlines are kind of has-beens."

That fact can be best told in the numbers: The combined airline’s estimated post-merger market capitalization of $8 billion is 3% of Apple Computer’s, based on Monday’s close. Airlines as a whole lost $50 billion in the last decade. In this industry, mergers are more like a wounded man trading in one crutch for a pair: It’ll be easier for him to get around, but he’ll be no less hobbled.

Where’s Justice?

Not surprisingly, given the industry’s troubles, it’s hard to imagine that even a more labor- and consumer-friendly Justice Department — as opposed to the Bush-appointed crew that approved the Delta-Northwest merger in 2008 — will put up much resistance to the United-Continental deal.

And that’s not just because of the relative dearth of route overlap between the two airlines — a grand total of seven routes in the third quarter of 2009, according to data provided by Oliver Wyman’s planestats.com. The difficulty in shrinking capacity within the current industry structure argues heavily in favor of further concentration.

Industrywide capacity shrunk 8% from 2007 to 2009, but it was too little to offset cratering demand caused by the recession. Even with planes being parked in the desert, average airfares dropped approximately 8% during the same period, according to the BTS. "There in no pricing power. None," said industry analyst Vaughn Cordle of Washington, D.C.-based Airline Forecasts.

A marriage of convenience

So shouldn’t this mega-merger be the kind of jolt that finally gives airlines the ability to raises prices (instead of just adding on ridiculous fees) and get out of the jam? It’s one thing to take out a few seats; it’s another to be able to rid yourself of planes en masse.

Well, not exactly. For one, airline mergers are notoriously tricky. The pilots of US Airways and America West, who merged in 2005, are still fighting over who has seniority.

And even a united United-Continental won’t have that much sway. A decade ago, the major carriers controlled 80% of the market; by the end of this year it will be closer to 50% and Cordle sees it soon heading to 40%. Consolidation isn’t about increasing power, it’s about staying alive.

Cordle’s firm estimates that without the merger, the five current legacy carriers — Delta-Northwest, American, United, Continental and US Airways — face $20 billion in additional costs by 2014 from rising fuel prices, airport facility charges and security and labor hikes. The United-Continental merger should allow those airlines alone to save $3 billion in such costs, he said.

Even one of the industry’s low-cost competitors welcomes the merger. Virginia Gambale, a director at JetBlue, said the company is pleased with the deal, noting that the industry’s fragile state and mercurial fortunes make it difficult to engage in long-term planning. "As we deal with less players in the market, it makes it easier to decide where and how we will compete," she said. "Uncertainty breeds its own inefficiency." 

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After four years of relative stability, Savvis Inc. is again looking for a new chief executive.

Phil Koen, who took the helm of the Town and Country-based company during a turbulent time, resigned abruptly Friday.

Koen will be replaced temporarily by Savvis Chairman Jim Ousley while the company searches for a more permanent option. The search is expected to take three to six months.

On Monday, Ousley said Koen’s departure is simply part of the company’s evolution. Koen joined the cloud computing firm — it provides information technology services and data storage for other companies — after former CEO Robert McCormick’s ugly departure. He left in late 2005 amid controversy over a $241,000 bill at a New York topless club that had been charged to a company credit card.

During Koen’s tenure, the company remade itself through acquisitions and the construction of data centers.

"The new CEO will have different traits than Phil. But Phil’s were ideal for that time," Ousley said.

Where Koen excelled in operational and financial areas, the new leader will be expected to have strong business development and sales and marketing skills, he said.

There’s certainly a challenge awaiting the company’s next chief executive.

After several years of significant losses following the dot-com bust, the firm finally turned a profit in 2007, only to slip again when the economy failed. Still, Ousley said Savvis is confident it is positioned to take advantage of an improving economic environment.

As to the suddenness of Koen’s departure, Ousley said it followed lengthy discussions about the company’s future and whether Koen wanted to commit another three to four years. Once the decision was made, there was no reason to put it off, with a considerable amount of strategic planning about be done, Ousley said.

"It came quicker just because it was the end of the year," he said.

In a company release, Koen cited the strength of the company’s management team and said "this is an excellent time for me to move on to a new opportunity and to watch Savvis continue to grow and excel."

Ousley also said the company has no plans to leave the St. Louis area.

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Employers are ramping up bonus payments this year to help retain the best workers as the economy slowly improves, according to a consulting firm survey released Thursday.

Challenger, Gray & Christmas, Inc., an outplacement consultancy, said 64% of employers are planning to hand out holiday bonus checks this year, up from 54% last year.

The poll of 100 human resources executives also found that more companies are planning to give bigger bonus checks this year.

A full 8% of the employers surveyed plan to increase the amount they award this year, compared with none last year.

While employers remain reluctant to expand payrolls, there is growing concern that job market improvements in 2010 could bring an exodus of workers, according to John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

"Companies are not quite ready to ramp up hiring, but they are beginning to see the light at the end of the tunnel," Challenger said in a statement.

Last week, the U.S. Labor Department said employers cut 11,000 jobs in October, which was far below any of the job losses posted over the last 23 months. The nation’s jobless rate improved to 10% from a 26-year high of 10 Internet Payday loans.2% the month before.

Still, employers have cut 7.2 million jobs since the beginning of 2008. And most economists expect unemployment to remain high well into next year.

The dismal job market and the looming threat of layoffs has weighed on worker morale, Challenger said, and employers are hoping a bigger bonus will help keep their employees happy.

"Companies are also sending a message that we appreciate that this has been a tough year for everyone, and that the workers’ part in ensuring continued survival is recognized," he said.

The poll also found that most companies are tying the size of bonus checks to the performance of the company or individual. According to the survey, 63% of those awarding holiday bonuses are basing them on performance.

Despite the overall increase in the number of companies awarding bonuses, 16% of respondents said that, while they awarded bonuses in 2008, they did not plan to do so this year. That’s up from 13% last year.  

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General Motors Co’s chief executive, Fritz Henderson, abruptly resigned on Tuesday, after the company’s board decided it wanted to chart a new course for the restructuring automaker.

Henderson was asked by the board to step down at a meeting in Detroit after being on the job for just eight months, according to a person with direct knowledge of the matter.

GM Chairman Ed Whitacre, 68, will become interim chief executive as the automaker begins an immediate search for a replacement, the company said.

The announcement of Henderson’s sudden departure underscored the tough oversight being exerted by a slate of new GM directors led by Whitacre and selected by the automaker’s majority shareholder, the U.S. Treasury.

Henderson, 51, became CEO in March after his predecessor, Rick Wagoner, was forced out by the Obama administration as part of the U.S. government-funded restructuring of GM.

“The board decided — and Fritz agreed — that given where we are, it was time to make some changes,” GM spokesman Chris Preuss said at a hastily arranged news conference.

Whitacre, a former AT&T chief executive, became chairman of GM in July as part of a new board vetted by the U.S. Treasury and intended to safeguard the government’s $50 billion investment in the automaker.

The U.S. government has a majority stake in GM, but the Obama administration has repeatedly said that it is leaving oversight of the company to Whitacre and the board.

“This decision was made by the board of directors alone. The administration was not involved in the decision,” a White House spokeswoman said.

WHO’S NEXT?

Whitacre, who became the public face of GM in its first ad campaign after bankruptcy, appeared briefly before reporters at GM’s headquarters in Detroit but did not take questions on why the board had chosen to part ways with Henderson.

Whitacre said Henderson, who helped GM through its July bankruptcy, had “done a remarkable job in leading the company through an unprecedented period of challenge and change.”

“While momentum has been building over the past several months, all involved agree that changes needed to be made,” Whitacre said.

Whitacre, a plain-spoken Texan who said he knew nothing about the auto industry when he became GM chairman, has surprised GM insiders by making unannounced plant visits and putting blunt questions to workers at all levels.

With his move to become GM’s interim CEO, all three U.S. automakers are now headed by outsiders to Detroit. 

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Local builder Clayco Inc. was recognized by the Design-Build Institute of America for its work on the Chevron NorthPark Office Building Project near New Orleans. The project received this year’s national Design-Build Award for exceptional construction of the 300,000-square-foot, fast-tracked Chevron headquarters building.

Chevron moved most of its business operations and a staff of 750 from downtown New Orleans to the new building on the north shore of Lake Pontchartrain at Covington, La., outside the most hurricane-prone area.

Clayco is a real estate development, design and construction firm. It has branch offices in the Chicago and Detroit areas.

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Australian exports of commodities will benefit from China’s commitment to maintain policies that support economic growth, Australian Treasurer Wayne Swan said.

China’s economy expanded 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of recession. China’s cabinet said Oct. 21 that it will continue with monetary and fiscal stimulus measures even after the economy’s expansion exceeded officials’ expectations.

China’s commitment to stimulate growth “will provide further support to Chinese demand for commodity and capital- goods imports, with implications for exports here in Australia,” Swan said in an e-mailed note. “As a resource-rich nation on Asia’s doorstep, Australia is uniquely placed to capitalize on this Asian century.”

Australia’s proximity to Asia is helping it rebound faster than most other developed economies. Trade figures show the nation’s largest export customers this year are China, Japan, South Korea, India and the U.S. Six years ago, the U.S. was ranked second.

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When Irene B. Rosenfeld, the chief executive of Kraft, was studying marketing at Cornell in the late 1970s, she was determined to get as many people as possible to respond to a survey she mailed out as part of her PhD research on how consumers choose products.

So she attached a crisp $1 bill to the surveys, to entice people to fill them out and mail them back. Rosenfeld now has a much bigger budget, but she is still working hard to persuade people to go along with her plans.

Kraft has just had its $16.7 billion (U.S.) offer for Cadbury, the British candy company, rebuffed – but Rosenfeld, who once headed Kraft’s Canadian operations, appears determined to push the deal forward.

She flew to London last month to lay out her merger plans to Cadbury’s chairman, Roger Carr. After the Cadbury board brushed off the overture, she decided to make the offer public last Monday in hopes of forcing the company’s hand.

In public comments, she has insisted the deal would benefit the shareholders of both companies. And when Cadbury insisted the offer undervalued the company, Rosenfeld said that the chocolate and gum maker had far less potential to grow on its own.

"This announcement just shows how ambitious she is," Erin Swanson, an equity analyst at Morningstar, told The New York Times. "She’s not content with the status quo. She’s striving for continuous improvement and looking to stir growth in what has been a more mature business."

The events have set the stage for a bidding war, meaning Kraft might have to pay substantially more if it wants to acquire Cadbury.

Anticipating that possibility, investors bid down Kraft shares, which dropped nearly 6 per cent last Tuesday. Cadbury shares, as measured in depository receipts, soared almost 40 per cent.

Analysts said that several other companies could also bid for Cadbury, including Nestl? SA and Hershey Co.

The coming battle will certainly test Rosenfeld’s leadership of the company she took over in 2006, vowing to revive sluggish sales of its brands, which include Oreo cookies, Oscar Mayer lunch meats and Velveeta cheese.

Analysts said the company’s results in the past two quarters were promising. "There seems to have been some evidence that she has in fact started to turn things around," said Matt Arnold, a consumer analyst with Edward Jones, a retail brokerage firm based in St. Louis.

Rosenfeld has said she wanted to encourage innovation by giving managers at many different levels of the company more power to make decisions and try new things cheap credit report. Arnold said that appeared to have made the company more nimble and quicker to introduce new or expanded product lines.

He said Kraft had success with an expanded line of DiGiorno frozen pizzas, which the company now sells in single-serve packages and in a premium variety. It has also revamped its Maxwell House coffee blend and packaging and has begun selling Oreo Cakesters, a snack cake based on the cookie.

"They just found ways to cater to consumer wants a little more, and the bet paid off," Arnold said.

Rosenfeld also turned back earlier efforts at cost-cutting that hurt the quality of the company’s products. For instance, she insisted on adding more cheese back into the mix for the company’s signature macaroni and cheese, after it had been cut back to save money.

While the Cadbury deal would be by far her biggest move to date, Rosenfeld has not shied from buying and selling. She sold the underperforming Post cereals division to Ralcorp for $1.7 billion in 2007, and in the same year paid $7 billion for the cookie unit of the French company Groupe Danone.

Several analysts told The Times that a Cadbury acquisition could make sense for Kraft, which would greatly expand its confectionery business. Cadbury would also give it strong sales in emerging markets, such as India, where the chocolate maker has strong sales and has seen impressive growth. But they cautioned that those considerations could change if Kraft winds up paying significantly more.

Rosenfeld, who declined to be interviewed, began working for Kraft in the early 1980s. She soon became a marketing manager with responsibility for Kool-Aid and helped increase sales, in part by changing television ads aimed at children that featured a rock and roll soundtrack. She had similar success with Jell-O and was later made head of Kraft’s Canadian and then North American divisions. But she left the company abruptly in 2003. In 2004 she was hired to be chief executive of PepsiCo’s Frito-Lay division. But two years later, she returned to Kraft, this time as chief executive. She was named chairman in 2007 and now holds both posts.

Rosenfeld’s thesis adviser at Cornell, Vithala R. Rao, still teaches marketing there, and said that he recalled the $1 bills and the innovative way his former pupil conducted her thesis survey nearly three decades ago (she received her PhD in 1980).

Rao said the trick worked, with the survey getting a higher response than might have been anticipated without the incentive.

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WPP, the world’s largest advertising group by revenue, could reap huge potential savings from consolidation in its back-office operations and from greater cooperation between its many agencies, its chief executive said on Friday.

WPP employs about 105,000 people directly, working for big-name brands such as Ogilvy & Mather and JWT. But each operates independently, which does not always bring the full benefits of the group to clients, Chief Executive Martin Sorrell told Reuters.

“We have five (advertising) agencies. It is ludicrous that you don’t have a common back office. It is the same business,” said Sorrell on the sidelines of the World Economic Forum.

“We aren’t doing enough. There are colossal savings for our clients and ourselves,” he said. “My ideal is you have one back-office for all the brands within 10 years.”

Sorrell’s comments come amid the backdrop of sagging global advertising revenues as clients cut spending during the economic downturn.

WPP reported a first half like-for-like drop in sales of 8.3 percent, compared to rival U.S. group Omnicom’s 8.8 percent fall and France-based Publicis’s drop of 6.6 percent.

WPP had said previously that it would see flat revenue growth in 2010

WPP has already reduced its headcount by 6 percent this year to counter the headwinds, after adding four percent to staffing last year credit scores for free. Sorrell did not say more layoffs were coming, but he noted that people were his biggest investment and would be a focus.

“We have to make the adjustments, primarily in our investment in people,” he said, making it clear that employees needed to adapt to change.

“Those people who can’t get their mentality around it, probably in the end, will have to go,” he said. “There is a revolution from the bottom, the world has changed.”

The executive said “the closer to the front lines you get, the more you are in the trenches … the younger the people are that you talk to, the more enthusiastic they are about these opportunities of working together.”

TOUGH MARKET

“The clients want us to work together, the clients want the best people working on their business,” he said. “Our people have a loyalty to not only WPP, but primarily to the brand in which they operate.”

“Historically, there has been a reticence to work with other brands. That is slowly being dismantled,” he said.

WPP is increasingly forming internal groups that cut across the different brands within the group on projects for clients as a way to maximize the group’s expertise. 

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