Finance

Hospitality in the Retail Sector

/ Rosemary Carlson / Leave a comment

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I went to a new day spa last week. I really enjoyed my experience there. Part of the reason that I did was their hospitality. Of course, that is supposed to be part of the experience at a day spa. You pay for a period of hospitality and pampering, although some are better than others. I have visited other day spas that were also very hospitable and some that were not. I doubt the ones that were not stayed in business very long since hospitality is part of the business model for day spas.

During and after my visit there, I started thinking about business today and how inhospitable most retail business is to customers. I don’t shop much in brick and mortar stores, preferring to do most of my shopping online. But when I do shop in the brick and mortar stores, it always strikes me how retail stores could do so much better from a profit perspective if they were only hospitable to their customers.

The sales staff in large retail stores certainly never make a move to help the people shopping in their stores. That attitude trickles down to even the smaller, boutique retail shops. Although the smaller shops occasionally help their customers, particularly if asked, I would not call them hospitable. In most stores today, sales staff seems almost non-existent and the staff that does exist seem to prefer to stand around talking to each other instead of helping customers. I’ve even had sales staff tell me that the product I’m looking for is available online but not in their stores, so I would be better served by shopping in their online store.

When I hear that vocalized, I always wonder why there is even a brick and mortar store there? If they don’t have their own products nor the sale staff that wants to sell them, why don’t they move to 100% online? They would save so much money.

I call the current attitude of many retail stores the “Wal-mart Mentality.” Anyone who has read much of what I write knows my issues with Wal-mart. Wal-mart may have provided a low-cost way to shop but trying to find assistance if you are shopping there is impossible. There are not hospitable. It seems that, since Wal-mart came to communities, other retail outlets have adopted their business model of not helping or caring about their customers.

I’m left wondering how much more profit retail businesses would make if they would be more hospitable and helpful to their customers. If they trained their sales staff in courtesy and hospitality, I would guess they would see their profit margins rise.

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Grace

/ Rosemary Carlson / 19 Comments

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He didn’t dare go home. He had worked all day, but he and his buddies had slipped out to the car and had one too many snorts of Old Crowe. He didn’t want to incur Pansy’s wrath, and he didn’t want to scare his sweet daughter.

That bike had been sitting there all day. Everyone was gone. He jumped on it and headed to the bar. He’d have another drink or two. Gus would let him sleep it off in the back room.

Sitting on the bar stool, he turned around and there stood Pansy. She offered him her arm.

 

Photo Credit @ Jellico’s Stationhouse

CQ: What does “Wealth” Mean to me?

/ Rosemary Carlson / 6 Comments

 

Wealth. I suppose some would call defining the concept of wealth creative. I don’t. After being a finance professor for over 27 years, I take the word “wealth” in a very literal sense. No arguments! I’m the finance professor in the room.

In a capitalist society such as the one we live in here in the United States, wealth is simply defined as the monetary or exchange value of something. Economic value, if you will. An example. Investors and speculators own corporations. Each part of the corporation is called a share. Each share has a monetary value. If a share of XYZ, Inc. is worth $10, then an investor who owns 10 shares has $100 of value in that corporation. That is called shareholder’s “wealth.” After my own professors in my Ph.D program convinced me of this,, through fear of retribution, and teaching it for so many years, I do indeed believe that wealth can be defined in terms of economic or monetary value.

Wealth is used in a similar manner throughout the quantitative business disciplines. I take the concept of wealth as factual and accurate and as I defined it in the first paragraph.

Can “wealth” and “creative” be used in the same sentence? Some large banks, non-banking institutions, and other financiers certainly tried to do that during the recession of 2008 when they used all sorts of creative financing methods to lend money to homeowners who really didn’t qualify for mortgages. The economy almost collapsed due to such shenanigans. That’s what I call the creative use of the word “wealth.”

Are there other creative meanings to the word “wealth?” I suppose we could say we are wealthy if we have a plethora of kittens or puppies or the love of our families. That is the warm and fuzzy side of wealth and I think there should be another word to describe such states of mind, not the word “wealth” which is clearly so useful in the business world. Maybe we should say we have an abundance of kittens or our cornucopia runneth over with the love of our families instead of using the business-honored word of wealth. We certainly would not describe the state of our corporations’ shareholders by saying “shareholder’s abundance” or “the shareholder’s  of XYZ, Inc.’s cornucopia runneth over,” would we? That would not be correct business terminology. Wealth has to be quantifiable, measurable. It’s hard to measure the value of said puppies or kittens or the love of our families.

Now you know this writer’s definition of wealth. What you don’t know is how much fun it has been writing this post and being the curmudgeon in the room! #amwriting #amblogging #writing #creativequestions

In response to Creative Questions

Mind the Gap: The Knowledge Gap

/ Rosemary Carlson / Leave a comment

When I saw this week’s Discover Challenge, I actually heard the big bang that occurred with the collision of my two careers. I received my doctorate degree in Business/Finance in 1988 and taught on a university level for many years. Writing is a second career that began with academic writing during my university career but expanded during and after that time into both non-fiction and fiction writing.

The concept of Mind the Gap is a familiar one to doctoral students. Our real purpose is to learn to do original research, not learn to teach, which is simply a by-product of our education. We learn to teach because we have to learn the material in our fields in order to do effective original research. That doesn’t mean we all become good teachers. That is another essay for another time.

My field was and is finance; specifically, corporate finance and financial institutions. Simply put, I studied larger business and big banks. Everything about larger business. What makes them tick. How to analyze their operations. How to advise them. How to value them. And much more. When I finished my courses in finance, banking, and statistics and was ready to write my dissertation, that is when “mind the gap” really became an issue. Doctoral students have written many papers up to that time. But there is nothing more important than the dissertation, which is nothing more or less than a book that you write about an original concept in your field. Not to mention the fact that you have to write a dissertation in order to graduate.

“Mind the gap” is the gap between existing knowledge, in my case, in corporate finance and banking and knowledge that is yet to be determined. I know that sounds very esoteric but in everything, there is knowledge yet to be determined. Business, science, technology….you get the picture. Else, we would never have the next iPhone. So, my task was to determine what my topic would be for my dissertation. Where did I think there was a gap in the knowledge in my field.

At that time, banking regulation was going out the window. Banks were beginning to merge and expand and the big regional banks we have today were being born. Banking executives seemed to think that bigger was better. At least, they thought it was more profitable and earned their shareholders more money. There was my topic. Was that true? There was the “gap.” No one yet knew if bigger was, indeed, better in banking.

I will spare you the details of my dissertation. (Trust me, you do not want to know.) But, in general, what I studied was whether or not banking expansion caused increased and even abnormal returns in banking. The bottom line was yes, in the short run, but no, in the long run. Think about this. I finished my dissertation on this topic in 1988. The financial crash that almost took down our economy that we all remember was at the end of 2007. What happened? The big banks were engaging in activities that were earning abnormal returns for them. It worked, in the short run. In the long run, many of them failed and many more were bailed out by the federal government.

There again is the “gap” I’m speaking of. The gap in the banking literature in 1988 was in the research on bank returns in the absence of the regulations they had always been under. By 2007, the premise I had studied in my dissertation had been addressed in the “real world” and had been proven to be correct. That gap in knowledge had been filled in. I had proven in my dissertation that banks do not earn excess returns in the long run as they become increasingly unregulated. They did, but only for a short time. Unfortunately, it seems to be happening again. #amwriting #amblogging #writing #banking

Social Responsibility in Banking

/ Rosemary Carlson / 2 Comments

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2008 Financial Collapse in Banking

Since the near collapse of the U.S. financial institutions at the end of 2008, the social responsibility of these and other institutions have been front and center in the American consciousness. It became apparent that the big banks and other financial institutions were all about profit and shareholder’s wealth in the short-term and not about their customers at all. It also didn’t seem that these corporations cared about their long-term profits or wealth of their shareholders because they allowed greed to take them so close to financial collapse. This attitude flies in the face of every principle of financial theory under which publicly traded institutions should operate.

The financial crisis in the U.S. really started back in 1999 when the Glass-Steagall Act was repealed. This legislation protected customers and shareholders alike because it prohibited banks of all sizes from engaging in both investment and commercial banking. Banks either had to be an investment bank which sold securities to the public or they had to be a retail bank that accepted deposit accounts and made loans. They could not do both. When Glass-Steagall was repealed in 1999, the scenario that followed was an almost exact replica of what happened in the 1920’s and the resulting stock market crash. Back then, banks were allowed to both accept deposits and make loans and issue securities. A bubble in the stock market resulted due to fraudulent activity and the stock market crashed. In 1933, Glass-Steagall was passed and protected shareholders and consumers alike until 1999. Then, the cycle began all over again. By 2007, banks were facing a crisis of liquidity and by the end of 2008, we really don’t realize how close our banking system in the U.S. was close to complete collapse. It would have collapsed had the Federal Government and the Federal Reserve not bailed them out.

By 2008, the banks had been mingling the investment and deposit functions for nine long years. They had been issuing securities and making loans. We know at least part of the story and there are many causes of the 2008 financial collapse. It was, indeed, a worldwide collapse. Consumers of financial products, such as mortgages, were not blameless. Even though corporations like the  big banks and non-banking corporations that failed, like Lehmann Brothers and AIG, are responsible for protecting their shareholders and consumers, those stakeholders pushed these corporations hard for these financial products. In the giant real estate bubble that resulted from the banking practices during that time, it was hard to say no.

Banks and other financial institutions should have said no. They should have stood up to their ethical responsibility to their shareholders and consumers, as well as to their employees. They are the experts. They are the ones with the full financial information, not the shareholders or consumers. They should have used their expertise to stop the fraudulent and unwise banking practices that were the “soup of the day” at that time. But, they did not. They paid the price and so did the consumer.

Banks used their ability to offer investment banking and loans to develop rather exotic financial products such as the subprime loan. This was a mortgage loan made to risky borrowers with poor credit histories that struggled to pay off these mortgages and many of them defaulted. They were then turned into pools of mortgages, called mortgage-backed securities, and were gathered into securities by the big banks called collateralized debt obligations, given high ratings by the credit ratings agencies, and sold to investors. Unfortunately, investors found out later they really weren’t worth anything. Interest rates were low and banks kept searching for riskier and riskier products in which to invest.

Mortgage-backed securities began to fail and collateralized debt obligations proved to be worthless. The banks’ capital positions began to erode. Banks have to always have a certain percentage of capital on hand to be sure they have adequate capital to meet the demand for customer withdrawals and loans. Bank regulators, charged with insuring that banks have adequate capital, seemed asleep at the wheel. Even as this was happening and banks were operating with a razor-thin capital position, consumers were demanding more and more low-interest mortgages.

In late 2008, it all came tumbling down. Banks and consumers alike realized that prosperity could not be built on bigger and bigger piles of debt. Investors suffered because the exotic securities they had purchased were worthless. The housing bubble burst and the price of homes dived steeply. It was a buyer’s market and seller’s just sat on their houses. Capital ratios for banks were so thin as to be non-existent and they had to be bailed out.

Had the financial institutions just remembered that one of the tenets of financial theory is not only maximization of shareholder wealth  but also social responsibility, none of this would have happened.

Not only do the managers and directors of a publicly-held business firm have a responsibility to maximize the stock price of that firm, they have a responsibility to maximize the stock price in a socially responsible manner. If a bank were a steel mill, they wouldn’t spill all their pollution into the air  because, in the long run, this would lower their stock price as investors and consumers alike would eventually feel the effects of that pollution. In banking, if the managers engage in risky behavior with the money of the consumers and stockholders and the jobs of their employees, they may reap the benefits for a short time, but in the long run, that bank runs the risk of financial collapse. Just  what happened in the 1920’s and again in 2008. Social responsibility is the only reasonable strategy for business firms if they want to survive in the long-term.

*Photo by waxesstatic @ flickr.com 2008

Freeman, R. Edward, ―A Stakeholder Theory of the Modern Corporation,‖ in Ethical Theory and Business, 5th and 6th edition, Tom L. Beauchamp and Norman E. Bowie, ed., 1997, 2001 Prentice Hall Inc.

Palazzo, Guido, ―Corporate Social Responsibility, Democracy, and the Politicization of the Corporation,‖ Academy of Management Review, 33 (2008), 773-75.

Will the Economy Affect the Presidential Election?

/ Rosemary Carlson / Leave a comment

I’m tired of the word “circus” when describing the 2016 Presidential election. It’s much worse than a circus as the connotation of that word is an event that includes fun and games. Even though the whole thing has seemed funny at times, the future of our country is at stake. When we finish laughing, suddenly it seems very serious. Will the current state of our economy affect the outcome of the 2016 Presidential election? In a perfect world, the voters would be looking at issues like the jobs report, inflation, interest rates, and a myriad of foreign policy issues. Have we heard much or anything about those issues this year? Not so much.

Oh, you can argue that we hear about foreign policy but all we hear is about terrorism and a little about immigration. Both are crucial issues but do we hear any real plans for either? Nothing sustainable. We already have immigration laws on the books that are not being enforced. We hear about a wall that may be built if a certain candidate is elected. The only thing we seem to know to do about terrorism outside of our borders seems to involve way too many innocent people.

Regarding domestic policy, there is very little discussion of policy positions except those that are either ultra-liberal or ultra-conservative which may not represent the majority of the American people.

I have heard little about the fact that, instead of rising, the Gross Domestic Product of the U.S. fell by 0.5% in the first quarter of 2016. In 2015, the pundits were predicting a roaring 2016 economy. Not happening. The job market. Last fall, we reached a 40 year low of the number of Americans participating in the job market at 62.4%. That has gone up slightly to 62.9%. Even though we added over 200,000 jobs during March 2016, the jobs are simply replacing jobs long since lost. Inflation. Core inflation increased 2.2% on an annual basis in March 2016 and 2.3% annually in February. Not much talk about these key issues that affect each of us.

Instead we get slogans and platitudes. Mudslinging and name calling.

Is the state of our economy really affecting the election? People certainly seem angry. Is what they are angry about……wages that don’t cover expenses, high cost of health insurance, terrorism….just to name a few….really something any of the candidates can do much about? Or has it all gone too far? Food for thought. #Hillary #Trump #presidentialelection #economy