Finance and Economic

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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Pending sales of previously owned U.S. homes raced to a two-year high in July, a real estate trade group said on Tuesday, giving more evidence that a recovery in the housing market was under way.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, rose 3.2 percent to 97.6, the highest level since June 2007, from 94.6 in June. Pending home sales contracts have risen for a record six straight months.

Analysts polled by Reuters had forecast pending home sales to rise 2.0 percent in July. Pending sales were 12 percent higher in July compared to the same period last year.

“The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit,” said Lawrence Yun, NAR chief economist.

NAR estimates between 1.8 million to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year and that roughly 350,000 additional sales would not have taken place without the credit. The scheme expires in November.

Recent data have suggested the housing market is starting to dig out of a three-year slump paydayloans. The collapse of the housing market was the main trigger of the worst U.S. recession in 70 years.

A recovery in the housing market would help combat losses at financial institutions, which have been battered by defaults on mortgages.

It would also improve the psychology of households, whose net worth has been decimated by the plunge in home values and encourage consumers to spend rather than save, analysts say.

The pending home sales index in the Northeast fell 3.0 percent to 78.8 in July but was 4.7 percent higher than the same period last year, the NAR said.

In the Midwest the index slipped 2.0 percent to 88.1 but was 8.1 percent above a year ago. Pending home sales activity in the South rose 3.1 percent to an index of 103.8, while contract activity in the West jumped 12.1 percent to 112.5.

(Reporting by Lucia Mutikani; Editing by Kenneth Barry)

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New York Federal Reserve Bank President William Dudley said it is too early to talk about curtailing the central bank’s long-term security purchases while the economic recovery is fragile.

“As financial conditions improve, which seems to be the trajectory, it’s a legitimate point to consider what you want to do in terms of your purchase programs,” Dudley told CNBC in an interview broadcast on Monday.

“My own personal view is I think it’s a little premature to be so confident that you want to pull all these things back right now because the economy still isn’t growing very fast and we do have a very high unemployment rate.”

Dudley’s comments show a divergence of views on the Fed’s interest-rate setting Federal Open Market Committee. Richmond Fed President Jeffrey Lacker said last week the Fed should consider foregoing the full extent of its long-term securities-buying pledge, which includes the plan to purchase $1.45 trillion of mortgage agency debt by the end of the year.

The Fed cut rates to zero in December and has pumped hundreds of billions into the financial system to fight the worst recession in 70 years. With signs of recovery in housing and manufacturing, the Fed has said the downturn appears to be leveling out. However, it also said any recovery is likely to be sluggish with unemployment, which was at 9.4 percent in July, painfully high for a while.

Dudley said in the interview that he is confident the central bank can withdraw its massive economic stimulus measures without allowing dangerous inflation to take hold.

“I’m completely committed to taking away the punch bowl at the right time,” he said. “I have no desire whatsoever to see inflation get out of control.”

The New York Fed head, who formerly ran the central bank’s trading operation that buys and sells Treasury securities to meet the Fed’s target interest rates, said the Fed has a range of options to prevent inflation even with the massive amount of money it has put into the financial system.

“We have tools to manage our balance sheet so that we’re not going to have an inflation outcome, bad inflation outcome,” Dudley said.

The Fed’s next policy-setting meeting is September 22-23. It has pledged to keep interest rates exceptionally low for an extended period to bolster the economy, but has already begun to taken some small steps toward exiting its aggressive stimulus measures.

The Fed said earlier this month it would end its program of buying $300 billion of longer-term Treasury securities by the end of October. It also said it would shrink the size of short-term cash auctions in September.

At the same time, sensitive to pockets of economic weakness, the Fed moved to boost credit to the ailing market for commercial real estate by extend an emergency lending program to mid-2010.

(Reporting by Mark Felsenthal; editing by Neil Stempleman)

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Airline shares have rallied ahead of Labor Day, an anticipated turning point for the troubled industry when many carriers will begin slashing seat capacity to match the drop in demand.

Investors are hoping capacity cuts will allow airlines to jack up ticket prices and reverse declining revenue. But the plan could falter because business travelers, the industry’s bread and butter, have yet to return.

"We’ve seen some improvement, but I think the bulk of that is being driven by the leisure traveler," said analyst Matt Jacob. "But the business traveler, those who buy close to booking and pay a premium price, that section of the business has continued to be weak.

"So the concern is, once we reach Labor Day and the end of the leisure travel period, how will that impact the improvement we’ve seen?"

Airline stocks have been volatile as investors try to figure out that answer.

After hitting its lowest point on record in March, the NYSE Arca Airline Index has bumped along this summer as airlines readjusted outlooks because of depressed demand and declining revenue. But since late June, the industry benchmark has managed to climb more than 44 percent.

That enthusiasm is tempered among many airline analysts.

"Our short-term revenue data suggest a little strength in late summer," said UBS analyst Kevin Crissey in a recent note.

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