Flexible Reality
Saturday, April 24, 2004
Scandal: Oil for Food
Scandal With No FriendsBy WILLIAM SAFIRE
NY Times Op-Ed
Published: April 19, 2004
WASHINGTON — How fares the multination cover-up of the richest rip-off in world history?
Obstruction of justice has never had it so good. Last month, after some badgering in this space and elsewhere, the House International Relations Committee announced it would look into the $5 billion kickback scandal in the United Nations' six-year Iraqi oil-for-food program, the largest humanitarian aid effort ever undertaken.
Note: Point of Order Mr. Safire: With the current US Military direct cost of $4.5 billion per month, and the over $150 billion thus far spent in Iraq by America does it seem to you that the UN Oil for Food Scandal approaches the magnitude of the Bush Administration Scandals, such as the overcharges by hand-picked US suppliers like Halliburton, the inappropriate diversion of $700 million from the Afgan War, the sequestering of Chalabi's INC organization, the improper favors shown to the Saudi monarchy, or the adopted disdain for a balanced solution to the Palestinian situation?
Really Sir, five billion dollars in questionable spending over six years by the UN, does not begin to compare to an estimated $300 billion over six years in questionable spending for the Iraq invasion to be paid by America? Scandal and major league ripoff is in the eye of the beholder.
It seems to this reader that you are trying a bit of diversion by pointing to an alledged weakness in a UN program which may be used domestically as a cover for the Bush Administration's Mid-East policies. Put the House hearings in context, and scale. Your guys have been wrong, have refused to admit it, and have not come up with any internationally supportable way out of the quagmire your guys took us into!
Dr. Anthony Cordesman from the Center for Stategic & International Studies
Dec 2002: Planning for a Self-Inflicted Wound: US Policy to Reshape a Post-Saddam IraqApril 2004: Iraq: On the Precipice of Failure?
April 2004: The Impact of President Bush's Speech/Press Conference
In References by Paul Krugman April 2004:
What Went Wrong?
By PAUL KRUGMAN
NY Times Op-Ed
Published: April 23, 2004
It's now widely accepted that the administration "failed dismally to prepare for the security and nation-building missions in Iraq," to quote Anthony Cordesman of the Center for Strategic and International Studies — not heretofore known as a Bush basher. Just as experts on peacekeeping predicted before the war, the invading force was grossly inadequate to maintain postwar security. And this problem was compounded by a chain of blunders: doing nothing to stop the postwar looting, disbanding the Iraqi Army, canceling local elections, appointing an interim council dominated by exiles with no political base and excluding important domestic groups.
Cronyism and corruption are major factors in Iraq's downward spiral. This week the public radio program "Marketplace" is running a series titled "The Spoils of War," which documents a level of corruption in Iraq worse than even harsh critics had suspected. The waste of money, though it may run into the billions, is arguably the least of it — though military expenses are now $4.7 billion a month. The administration, true to form, is trying to hide the need for more money until after the election; Mr. Cordesman predicts that Iraq will need "in excess of $50-70 billion a year for probably two fiscal years."
More important, the "Marketplace" report confirms what is being widely reported: that the common view in Iraq is that members of the U.S.-appointed Governing Council are using their positions to enrich themselves, and that U.S. companies are doing the same. President Bush's idealistic language may be persuasive to Americans, but many Iraqis see U.S. forces as there to back a corrupt regime, not democracy.
Now what? There's a growing sense of foreboding, even panic, about Iraq among national security experts. "This is an extremely uncertain struggle," says Mr. Cordesman, who, to his credit, also says the unsayable: we may not be able to "stay the course." But yesterday Condoleezza Rice gave Republican lawmakers what Senator Rick Santorum called "a very upbeat report." That's very bad news. The mess in Iraq was created by officials who believed what they wanted to believe, and ignored awkward facts. It seems they have learned nothing.
A Shorter Version of: "Against All Enemies"
The Wrong Debate on TerrorismBy RICHARD A. CLARKE
NY Times Op-Ed
Published: April 25, 2004
The last month has seen a remarkable series of events that focused the public and news media on America's shortcomings in dealing with terrorism from radical Islamists. This catharsis, which is not yet over, is necessary for our national psyche. If we learn the right lessons, it may also prove to be an essential part of our future victory over those who now threaten us.
But how do we select the right lessons to learn? I tried to suggest some in my recent book, and many have attempted to do so in the 9/11 hearings, but such efforts have been largely eclipsed by partisan reaction.
One lesson is that even though we are the world's only remaining superpower — as we were before Sept. 11, 2001 — we are seriously threatened by an ideological war within Islam. It is a civil war in which a radical Islamist faction is striking out at the West and at moderate Muslims. Once we recognize that the struggle within Islam — not a "clash of civilizations" between East and West — is the phenomenon with which we must grapple, we can begin to develop a strategy and tactics for doing so. It is a battle not only of bombs and bullets, but chiefly of ideas. It is a war that we are losing, as more and more of the Islamic world develops antipathy toward the United States and some even develop a respect for the jihadist movement.
I do not pretend to know the formula for winning that ideological war. But I do know that we cannot win it without significant help from our Muslim friends, and that many of our recent actions (chiefly the invasion of Iraq) have made it far more difficult to obtain that cooperation and to achieve credibility.
What we have tried in the war of ideas has also fallen short. It is clear that United States government versions of MTV or CNN in Arabic will not put a dent in the popularity of the anti-American jihad. Nor will calls from Washington for democratization in the Arab world help if such calls originate from a leader who is trying to impose democracy on an Arab country at the point of an American bayonet. The Bush administration's much-vaunted Middle East democracy initiative, therefore, was dead on arrival.
We must also be careful, while advocating democracy in the region, that we do not undermine the existing regimes without having a game plan for what should follow them and how to get there. The lesson of President Jimmy Carter's abandonment of the shah of Iran in 1979 should be a warning. So, too, should we be chastened by the costs of eliminating the regime of Saddam Hussein, almost 25 years after the shah, also without a detailed plan for what would follow.
Other parts of the war of ideas include making real progress on the Israel-Palestinian issue, while safe-guarding Israeli security, and finding ideological and religious counter-weights to Osama bin Laden and the radical imams. Fashioning a comprehensive strategy to win the battle of ideas should be given as much attention as any other aspect of the war on terrorists, or else we will fight this war for the foreseeable future. For even when Osama bin Laden is dead, his ideas will carry on. Even as Al Qaeda has had its leadership attacked, it has morphed into a hydra, carrying out more major attacks in the 30 months since 9/11 than it did in the three years before.
The second major lesson of the last month of controversy is that the organizations entrusted with law enforcement and intelligence in the United States had not fully accepted the gravity of the threat prior to 9/11. Because this is now so clear, there will be a tendency to overemphasize organizational fixes. The 9/11 commission and President Bush seem to be in a race to propose creating a "director of national intelligence," who would be given control over all American intelligence agencies. The commission may also recommend a domestic security intelligence service, probably modeled on Britain's MI-5.
While some structural changes are necessary, they are a small part of the solution. And there is a risk that concentrating on chain-of-authority diagrams of federal agencies will further divert our attention from more important parts of the agenda. This new director of national intelligence would be able to make only marginal changes to agency budgets and interactions. The more important task is improving the quality of the analysts, agents and managers at the lead foreign intelligence agency, the Central Intelligence Agency.
In addition, no new domestic security intelligence service could leap full grown from the Federal Bureau of Investigation and the Department of Homeland Security. Indeed, creating another new organization while we are in a key phase in the war on terrorism would ignore the lesson that we should have learned from the creation of Homeland Security. Many observers, including some in the new department, now agree that the forced integration and reorganization of 22 agencies diverted attention from the missions of several agencies that were needed to go after the terrorists and to reduce our vulnerabilities at home.
We do not need another new agency right now. We do, however, need to create within the F.B.I. a strong organization that is vastly different from the federal police agency that was unable to notice the Al Qaeda presence in America before 9/11. For now, any American version of MI-5 must be a branch within the F.B.I. — one with a higher quality of analysts, agents and managers.
Rather than creating new organizations, we need to give the C.I.A. and F.B.I. makeovers. They cannot continue to be dominated by careerists who have carefully managed their promotions and ensured their retirement benefits by avoiding risk and innovation for decades. The agencies need regular infusions throughout their supervisory ranks of managers and thinkers from other, more creative organizational cultures.
In the new F.B.I., marksmanship, arrests and skill on the physical training obstacle course should no longer be prerequisites for recruitment and retention. Similarly, within the C.I.A. we should quash the belief that — as George Tenet, the director of central intelligence, told the 9/11 commission — those who have never worked in the directorate of operations cannot understand it and are unqualified to criticize it.
Finally, we must try to achieve a level of public discourse on these issues that is simultaneously energetic and mutually respectful. I hoped, through my book and testimony, to make criticism of the conduct of the war on terrorism and the separate war in Iraq more active and legitimate. We need public debate if we are to succeed. We should not dismiss critics through character assassination, nor should we besmirch advocates of the Patriot Act as fascists.
We all want to defeat the jihadists. To do that, we need to encourage an active, critical and analytical debate in America about how that will best be done. And if there is another major terrorist attack in this country, we must not panic or stifle debate as we did for too long after 9/11.
Richard A. Clarke, former head of counterterrorism at the National Security Council, is the author of "Against All Enemies: Inside America's War on Terror."
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Texas Salesman
A young guy from Texas moves to California and goes to a big mega-department store looking for a job. The manager says, "Do you have any sales experience?" The kid says, "Yeah, I was a salesman back home in Texas."Well, the boss liked the kid so he gave him the job. "You can start tomorrow. I'll come down after we close and see how you did." His first day on the job was rough, but he got through it. After the store was locked up, the boss came down.
"How many sales did you make today?" the boss asked.The kid says, "One." The boss says, "Just one? Our sales people average 20 to 30 sales a day. How much was the sale for?"
The kid says, $101,237.64.
The boss says, $101,237.64? What the hell did you sell?" The kid says, "First I sold him a small fish hook. Then I sold him a medium fish hook. Then I sold him a larger fish hook. Then I sold him a new fishing rod.
Then I asked him where he was going fishing and he said down the coast, so I told him he was going to need a boat, so we went down to the boat department and I sold him that twin engine Chris Craft.
Then he said he didn't think his Honda Civic would pull it, so I took him down to the automotive department and sold him that 4 x 4 Blazer."
The boss said, "A guy came in here to buy a fish hook and you sold him a boat and truck?"
The kid says, "No, he came in here to buy a box of tampons for his wife and I said, "Well, your weekend's shot -- you might as well go fishing."
You Go Joe !!
CEO Pay Went Up 19% Last Year. Three Cheers for The Economy RecoveryBy Joe Rothstein
Editor, USPoliticstoday.com
I love the Wall Street Journal.
Here’s what I love most. They speak truth to financial power. And they do it from their unique vantage in the rarified atmosphere of lower Manhattan where so much of the world’s wealth and corporate decision-making is managed. It's not uncommon to see on the Journal's news pages the toughest and most carefully documented articles published anywhere about corporate and accounting fraud, economic mismanagement and other violations of the capitalist system.
What triggers this love note to the Journal is a whole section it published April 12 about executive pay, based on an annual survey by Mercer Human Resource Consulting. Many CEOs and their corporate boards are likely to have seen this report and then looked at their shoes with embarrassment. Let’s hope. They should.
Example:
The median white collar worker made $46,100 in 2003, an increase of 3.3% from the previous year. By contrast, the median CEO at 350 of the nation’s largest corporations, made $3.6 million, an increase of 19% from the previous year.
The disparity hardly needs further explanation, but the Journal goes on to note that it’s even worse than it looks. If you factor in stock and options the typical CEO receives, the average jumps to $6.2 million. As Journal columnist Jesse Eisinger points out after looking at these numbers, “Most of the top CEOs didn’t invent anything, nor are they entrepreneurs. They are custodians. Yes, they are caretakers with big responsibilities—but not that big.”
Drilling down into the numbers we quickly find Rueben Mark, the CEO of Colgate-Palmolive with total compensation in 2003 of $141 million. (above average, as Garrison Keeler might say on Prairie Home Companion. Shareholders of Mr. Mark’s company didn’t share in his good fortune. They lost 2.5% last year.
David Dorman, CEO of AT&T, presides over a company whose share value has declined 17% over 5 years, and even lost 2.6% in 2003—when most stocks enjoyed robust growth. Dorman took home about $7.5 million for his contribution to this performance.
The Journal neglected to point out that 2003 was also a year when more companies than ever shipped jobs overseas and cut back on employee health benefits to "cut operating costs and become more competitive." I don't think it's off point to mention those details here.
One of the drivers of such high CEO pay is the issuance of stock options. Volumes have been written during the past few years about how tying CEO and other top executive pay to an increase in stock price has led to shareholder calamities such as Enron, Worldcom and the other fast-Eddie businesses that are now in the process of “reorganization."
The Wall Street Journal’s Executive Pay edition has a lot to say about stock options—noting that fewer companies are granting them and that shareholders voted on a record 201 CEO pay limiting resolutions in 2003, 49 of which passed. Remarkable, since most corporate votes resemble Cuba's, where you don't need exit polls to know the results in advance.
On the bright side, the Journal's Executive Pay edition features John Faraci, chairman and CEO of International Paper who dropped options in favor of performance-based shares. Faraci and his top executives designed a plan where they can only sell their shares if the company achieves better return on investment and total shareholder return better than the median player in its peer group.
Performance-based rewards? What will they think of next?
Not everyone is for changing the system, as you might imagine. The powerful Washington Business Roundtable looked at executive compensation last year and warned compensation committees to “resist an over-reliance on surveys and other statistical analyses in determining compensation levels….Company specific factors should be given significant weight in determining executive compensation.” Read between the lines—"how cozy are the board members with the CEO."
Despite the hold-outs there’s no question that a new sense of shareholder activism, driven mainly by large pension funds and organized labor, has been having an impact on what up until lately has been a tightly circular system: The CEO maneuvers a friendly board into a lush contract, and the board, in turn is rewarded with lush perks.
But a number of obstacles have popped up in the way of that relationship.
--With the Internet and high speed communications, many more people are much better informed about the inner workings of the company than ever before.
--The accounting and corporate scandals of the past few years have shot down the stars in the eyes of investors who thought they could depend on institutional protections.
--The gaps between them on top and the rest of us is widening, and the blatant unfairness of a CEO who takes home megabucks more than the average company worker is too hard to miss.
Michael Eisner’s dismissal as CEO of Disney was a high visibility shot across the bow. Even with all of the evident waste and mismanagement at Disney, Eisner might have kept his mouse ears on if the corporate environment in general had not changed.
Other CEOs are also biting the dust. Hit lists of Board members are widespread. In this age of outsourcing, maybe Eisner and some of his fellow CEOs and corporate insiders might be re-trained after losing their jobs. That's certainly the solution the economists try to stuff down the throats of displaced workers lower down on the pay scale.
Maybe they can be trained in a new and expanding manufacturing field, like fast food management.
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Joe Rothstein, editor of USPoliticstoday.com, is a former daily newspaper editor and long-time national political strategist based in Washington, D.C.
Friday, April 23, 2004
A 100 Person Village
THIS PUTS OUR WORLD INTO PERSPECTIVE:If we could shrink the earth's population to a village of precisely 100 people, with all the existing human ratios remaining the same, it would look something like the following:
There would be...
57 Asians
21 Europeans
14 from the Western Hemisphere, north & south
8 Africans
52 would be female
48 would be male
70 would be nonwhite
30 would be white
70 would be non-Christian
30 would be Christian
89 would be heterosexual
11 would be homosexual
6 people would possess 59% of the entire world's wealth, and all 6 would be from the United States
80 would live in substandard housing
70 would be unable to read
50 would suffer from malnutrition
1 would be near death
1 (yes, only 1) would have a college education
1 would own a computer.
When one considers our world from such a compressed perspective, the need for acceptance, understanding and education becomes glaringly apparent.
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Wednesday, April 21, 2004
Empires' Collapse if Not Tended To Vigorously
Losing Our Edge?By THOMAS L. FRIEDMAN
NY Times Op-Ed
Published: April 22, 2004
I was just out in Silicon Valley, checking in with high-tech entrepreneurs about the state of their business. I wouldn't say they were universally gloomy, but I did detect something I hadn't detected before: a real undertow of concern that America is losing its competitive edge vis-à-vis China, India, Japan and other Asian tigers, and that the Bush team is deaf, dumb and blind to this situation.
Several executives explained to me that they were opening new plants in Asia — not because of cheaper labor. Labor is a small component now in an automated high-tech manufacturing plant. It is because governments in these countries are so eager for employment and the transfer of technology to their young populations that they are offering huge tax holidays for U.S. manufacturers who will set up shop. Because most of these countries also offer some form of national health insurance, U.S. companies shed that huge open liability as well.
Other executives complained bitterly that the Department of Homeland Security is making it so hard for legitimate foreigners to get visas to study or work in America that many have given up the age-old dream of coming here. Instead, they are studying in England and other Western European nations, and even China. This is leading to a twofold disaster.
First, one of America's greatest assets — its ability to skim the cream off the first-round intellectual draft choices from around the world and bring them to our shores to innovate — will be diminished, and that in turn will shrink our talent pool. And second, we could lose a whole generation of foreigners who would normally come here to study, and then would take American ideas and American relationships back home. In a decade we will feel that loss in America's standing around the world.
Still others pointed out that the percentage of Americans graduating with bachelor's degrees in science and engineering is less than half of the comparable percentage in China and Japan, and that U.S. government investments are flagging in basic research in physics, chemistry and engineering. Anyone who thinks that all the Indian and Chinese techies are doing is answering call-center phones or solving tech problems for Dell customers is sadly mistaken. U.S. firms are moving serious research and development to India and China.
The bottom line: we are actually in the middle of two struggles right now. One is against the Islamist terrorists in Iraq and elsewhere, and the other is a competitiveness-and-innovation struggle against India, China, Japan and their neighbors. And while we are all fixated on the former (I've been no exception), we are completely ignoring the latter. We have got to get our focus back in balance, not to mention our budget. We can't wage war on income taxes and terrorism and a war for innovation at the same time.
Craig Barrett, the C.E.O. of Intel, noted that Intel sponsors an international science competition every year. This year it attracted some 50,000 American high school kids. "I was in China 10 days ago," Mr. Barrett said, "and I asked them how many kids in China participated in the local science fairs that feed into the national fair [and ultimately the Intel finals]. They told me six million kids."
For now, the U.S. still excels at teaching science and engineering at the graduate level, and also in university research. But as the Chinese get more feeder stock coming up through their high schools and colleges, "they will get to the same level as us after a decade," Mr. Barrett said. "We are not graduating the volume, we do not have a lock on the infrastructure, we do not have a lock on the new ideas, and we are either flat-lining, or in real dollars cutting back, our investments in physical science."
And what is the Bush strategy? Let's go to Mars. Hello? Right now we should have a Manhattan Project to develop a hydrogen-based energy economy — it's within reach and would serve our economy, our environment and our foreign policy by diminishing our dependence on foreign oil. Instead, the Bush team says let's go to Mars. Where is Congress? Out to lunch — or, worse, obsessed with trying to keep Susie Smith's job at the local pillow factory that is moving to the Caribbean — without thinking about a national competitiveness strategy. And where is Wall Street? So many of the plutocrats there know that the Bush fiscal policy is a long-term disaster. They know it — but they won't say a word because they are too greedy or too gutless.
The only crisis the U.S. thinks it's in today is the war on terrorism, Mr. Barrett said. "It's not."
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Another View of Outsourcing
Outsourcing Failures?By: Michael F. Corbett & Associates, Ltd.
The power of outsourcing to transform organizations and deliver improved business performance is well understood and well documented. Outsourcing is now the “preferred option” over internal investments in non-core areas at many of today’s leading technology companies—from industry powerhouse Microsoft to fast-growing upstarts like Outercurve Technologies and Vertical Networks.
Long-time Fortune 500 companies, such as American Express, General Motors and United Technologies are adopting outsourcing at an accelerating pace. At the same time, the outsourcing industry itself is flourishing, lead by companies such as Arthur Andersen, Xerox, Trammell Crow Company, Salience, Pitney Bowes, Ikon, Fluor Global Services, and hundreds of others. These firms are successfully providing sophisticated outsourcing solutions across technology, facilities operations, logistics, manufacturing, finance, and human resources—literally every conceivable aspect of a modern business operation.
Interestingly, against this backdrop the topic that’s arising with increasing regularity is outsourcing failures. How often do outsourcing relationships fail? What are the reasons? What can be done to avoid these failures? Do the companies actually bring the work back in-house or do they move to another provider? What are the ramifications? Are there high-profile examples that can be examined in detail and from which we can learn?
What Surveys Tell Us
There are a number of surveys that report what appears on the surface to be an alarming rate of outsourcing failures.
One place these figures show up is in the, Dun & Bradstreet Barometer of Global Outsourcing that D&B researches and publishes annually. The 2000 study was based on telephone interviews with 2,200 companies with revenue of $10 million or more in sales, plus banks and hospitals. Another 1,000 interviews were conducted with smaller firms. D&B drew from its database of more than 57 million companies worldwide to select its sample.
The Barometer found that it appeared that global spending on outsourcing would increase 25 percent in 2000 alone, reaching US$1 trillion annually—an extraordinary number. A full 90 percent of the companies reported that they planned to increase their outsourcing spending in 2000. Thus, spending growth in this area in the U.S. continues at the very healthy pace of 15 percent a year, while spending in Asia is expected to increase by 50 percent. In the U.S. the functional areas of administration, marketing and sales, human resources, and manufacturing are showing the fastest growth.
While this would seem to present quite a rosy outlook, the Barometer also found that 25 percent of all firms’ functions report an outsourcing relationship failure within the past two years. “Failure” was defined as the termination by the client of a contract before its expiration date for contracts that had been in place for at least one year. The idea that one-quarter of all executives experience an outsourcing failure, by this definition, is most certainly a matter of real concern.
Another study, published by Dataquest, reported that more than half (53 percent) of all outsourcing customers surveyed said that they had renegotiated an outsourcing contract, and in nearly one-quarter of these renegotiations the provider lost the account. While this is a much less dismal picture, it still might give pause to those who view outsourcing contracts as stable long-term relationships.
Another angle from which to consider outsourcing failures is the provider side—this offers a look at a measurement called the annual client retention rate. While this rate, on the industry average, is generally thought to be about 90 percent, some providers enjoy annual retention rates as high as 95 percent-plus. But that still means that the average provider loses about 10 percent of its contracts annually. This figure includes normal contract expirations that aren’t renewed, customers that go out of business or disappear through mergers and acquisitions, as well as straight-out cancellations for whatever the reason may be.
This 90 percent number is more or less in line with a recent survey we conducted in association with Facility Design and Management magazine. This survey found a 90 percent satisfaction rate among customers of a wide range of facilities outsourcing services. If 90 percent of these customers are satisfied, and if they are representative of outsourcing customers across other functional areas, then the reports of higher failure rates seem out of line. Then again, satisfaction does not necessarily mean that a contract won’t be prematurely terminated; it takes a lot more than simple satisfaction to keep customers today.
Perhaps the best way to put all of this in perspective is to compare all of these statistics/conclusions with other business-related statistics. According to KPMG, just one in five mergers lives up to its promise—an 80 percent failure rate—and Business Week recently (December 11, 2000) profiled 10 M&As that had been extremely costly to the companies’ shareholders. Then there’s the growing turnover rate for CEOs and other top executives. During 2000, CEOs at 39 of the 200 largest U.S. companies left their jobs by the fall of the year, compared to a total of 23 who left the 200 biggest during all of 1999. One could interpret this as representing a 20 percent-plus “failure rate” for CEOs.
While these comparisons bring some perspective to the issue, this is not to suggest that there isn’t a problem. No matter what the precise outsourcing failure rate may be, one thing is clear—even a single failure is costly to both parties.
What Is the Cause of Outsourcing Failures?
Putting the discussion of the failure rate aside and turning to the underlying reasons, Dun & Bradstreet, in its 2000 study, went on to ask customers just why the contracts were terminated. Although the responses were expressed in many different ways, the main underlying issue seemed to be that customers simply did not see the return that they had expected. Sometimes the services were reported as being “too expensive.” In other instances, cancellation was because the provider “did not perform” or the customer concluded they could “do it better themselves.”
Basically, when outsourcing relationships fail it is most often due to a disconnect between the customer’s expectations and the perceived results. We don’t know whether it’s a matter of too-high expectations or too-low performance, and we don’t know to what extent it’s the provider or the customer who is contributing to these misperceptions. What can be said with certainty is that both customers and providers alike need to do a better job of setting expectations at the beginning of the relationship and then executing and measuring outcomes against those expectations. This is something which would seem to be easy enough to accomplish, but in the real world—especially one moving at Internet speed with markets that severely punish missed expectations—it is increasingly difficult.
What’s the Good News?
The good news is that although outsourcing relationships can be rocky at times, larger outsourcing relationships almost never fail to the point of cancellation. In fact, there are probably only one or two really high-profile outsourcing contracts cancelled in recent memory with a return of the resources and employees to the customer. What does seem to be true, however, is that there is a certain amount of re-negotiation taking place in contracts of all sizes and some level of churn—that is switching of providers—in smaller relationships. While the larger strategic deals may have their rocky periods, they involve such a large investment and so much management attention that the problems almost always get worked out.
The best news of all is that the management disciplines for ensuring outsourcing success are actually well documented. “Best Practices In Managing the Outsourcing Relationship,” developed with the support of The Outsourcing Research Council and published by Michael F. Corbett & Associates, Ltd., is one source. Other excellent books and guides to successful outsourcing are out there as well -- in particular, works by Quinn, Jones, Lacity and Willcocks.
Some of the keys to avoiding failures are to:
� Approach the relationship as a strategic investment, not as a purchasing decision.
� Make the investment to truly understand and align the interests of both parties.
� Establish an objective, measurable scorecard in advance and use it as a cornerstone of the management process.
� Define the process for escalating problems and negotiating changes and make them part of the regular, ongoing management of the relationship.
� Put experienced people in place to manage the relationship—people who have the personal, professional and economic incentives to make it work.
Where Do We Go from Here?
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Labor Dept. Revises Plans to Cut Overtime Eligibility
By STEVEN GREENHOUSE
NY Times
Published: April 21, 2004
Facing a deluge of criticism in an election year, the Bush administration yesterday scaled back its plans to deny overtime coverage to hundreds of thousands of American workers.
With many police officers, firefighters and higher-paid blue-collar workers fearing that the administration's draft regulations would make them exempt from overtime pay, Secretary of Labor Elaine L. Chao announced revised regulations that she said would ensure those workers still qualified.
The administration also said workers earning more than $100,000 a year would almost automatically be disqualified for overtime pay, increasing that threshold from the $65,000 it proposed a year ago. There currently is no ceiling.
Ms. Chao said the new rules, the first broad revision of overtime regulations in 50 years, would protect workers and would merely modernize and simplify regulations governing more than 100 million working people.
"Our intent is always to strengthen overtime protections," Ms. Chao said at a news conference in Washington. "We do not expect that many people will lose their overtime."
But many Democratic officials and labor leaders said the new rules favored corporate America and denied overtime pay to many middle-class workers just when they were feeling an economic squeeze.
When the Bush administration proposed new overtime rules a year ago, Labor Department officials estimated that an additional 644,000 workers would be ineligible for overtime pay. But the liberal Economic Policy Institute said the administration had deliberately underestimated the number, predicting that eight million workers would lose eligibility.
Ms. Chao said yesterday that the new rules, which take effect in 120 days, would deny eligibility to only 107,000 workers. But the administration's critics asserted that she was again underestimating the number.
"This is an administration that had no reservations about repealing overtime for eight million workers," said Senator Tom Daschle of South Dakota, the Democratic leader. "So it's hard for us to believe that they now have some transformation in that position and have been converted to an advocacy of overtime for these people."
In a statement, Senator John Kerry, the likely Democratic presidential nominee, said, "The Bush administration's changes to overtime pay strike a severe blow to what little economic security working families have left as a result of Bush's failed policies."
Under the Fair Labor Standards Act, workers are generally to receive time-and-a-half pay when they work more than 40 hours a week, except when they are salaried workers in certain executive, administrative or professional positions.
The new rules modify the tests determining who qualifies for overtime pay, with the criteria including the amount of managerial responsibility and professional training.
The pay level below which workers are automatically eligible for overtime pay will rise to $23,660, from $8,060. The administration said this threshold would guarantee overtime eligibility to 1.3 million workers who do not now receive it.
Under the current regulations, many assistant store and restaurant managers with salaries of about $20,000 do not qualify for overtime pay, even when they work 60-hour weeks.
Corporate and union officials acknowledged that it was unclear which workers earning between $23,660 and $100,000 would still qualify for overtime pay.
American corporations have pressed President Bush to revise the overtime rules, saying those regulations were so unclear that they encouraged hundreds of lawsuits in which low-level managers asserted that they deserved overtime pay.
"We're pleased that after having to live with 50-year-old regulations that no longer fit today's workplace, we finally face an update," said Katherine Lugar, vice president for legislative and political affairs with the National Retail Federation. "I expect at the end of the day we'll have more clarity."
Critics and supporters of the new rules, which are 500 pages long, said it would take days to assess exactly how many workers would be disqualified from overtime pay.. There was widespread agreement that fewer would lose eligibility than under the original proposals.
Saying the administration was heeding political concerns, Bill Samuel, the A.F.L.-C.I.O.'s legislative director, said, "We think there are some partial fixes in areas where the Labor Department was under attack."
The Labor Department received more than 75,000 e-mail messages and letters commenting on its draft proposal.
Ms. Chao said the new rules would continue to provide overtime eligibility to police officers, firefighters, emergency medical technicians, blue-collar workers and licensed practical nurses, groups that said language in the draft regulations might have exempted them.
The new rules indicate that some workers earning between $23,660 and $100,000 will almost automatically be exempted, including claims adjusters, funeral directors and many computer administrators.
The original proposals angered veterans' groups because they said that training received in the military could be counted as professional education that might disqualify workers from overtime pay. The new regulations omitted that language.
Under the new rules, white-collar employees who earn at least $100,000 will be exempt from overtime pay if they regularly perform some duties of an executive, administrative or professional employee. But white-collar workers earning more than $100,000 will still receive overtime pay if covered by a union contract that provides for it.
Tuesday, April 20, 2004
Mark Harden's Artchive: "Artchive"; an online site devoted to fine art, and the artists who made it happen.
Artist sprays iceberg blood red
BBC - UK Edition
The crew worked in freezing conditions A controversial Danish artist has sprayed an iceberg off the coast of western Greenland in blood red. "We all have a need to decorate Mother Nature because it belongs to us," Chilean-born Marco Evaristti told the Associated Press news agency.
"This is my iceberg; it belongs to me," Mr Evaristti added.
He used 3,000 litres of paint diluted with sea water, three fire hoses, two icebreakers and a 20-man crew to complete the task in about two hours.
The crew was working on Wednesday in temperatures as cold as -23C, to spray the tip of the iceberg, which was about 900 square metres (1,080 square yards) in size.
The sea water was coloured with the same dye used to highlight meat, the artist said.
Mr Evaristti said he and his crew sailed from the small town of Illullissat and only managed to find the perfect iceberg after zigzagging among slow-moving ice floes for about 30 minutes.
There was no immediate reaction from the local Greenland authorities. Mr Evaristti is well-known for his controversial art shows. In 2000, his art display in a Danish gallery invited the public to put live goldfish through food blenders. Visitors were told they could press the "on" button if they wanted. At least one visitor did, killing two goldfish.
SCO's Status Today !
SCO Group Asked to Repay $20 MillionLA Times Headlines
From Associated Press
A lender is calling due $20 million in loans to SCO Group Inc., a Lindon, Utah, company that has made headlines with suits over Linux-related copyright and licensing claims. In a letter to SCO on Thursday, Larkspur, Calif.-based BayStar Capital cited unspecified breaches of the loan's terms in calling the loans.
"This came as a surprise to us," SCO spokesman Blake Stowell said. "We are seeking more info from BayStar on exactly how they feel we breached the agreement. We feel like we've held to the terms completely." Shares of SCO fell 60 cents to $7.77 on Nasdaq.
Monday, April 19, 2004
How to earn $3.5 trillion and pay zero taxes
Christian Science Monitor
By David R. Francis
The April 2 release of a General Accounting Office report on corporate taxes could hardly have been better timed to get press attention. Just as millions of Americans were filling out their federal 2003 tax forms to beat the April 15 deadline, the GAO study indicated that most corporations owed no taxes from 1996 to 2000, a boom period for corporate profits. Those untaxed corporations earned $3.5 trillion of revenues.
For years, companies and their representatives, such as the National Association of Manufacturers, have complained that businesses are overtaxed. The latest studies of corporate taxation suggest that, in general, this is not true. "The usual arguments may be baloney," says Piatt.
The GAO study found that 71 percent of foreign-controlled corporations operating in the United States paid no taxes in those five years; nor did 61 percent of US-controlled companies.
The basic corporate tax rate stands officially at 35 percent. In reality, it's far below that for most companies. And the importance of corporate tax revenues for Uncle Sam has shrunk. That's shown by the numbers.
Corporate taxes have fallen from 5 percent of gross domestic product, the nation's output of goods and services, in 1946 to 1.4 percent now.
As a percentage of all federal tax revenues, corporate tax payments have declined from 23 percent in 1960 to 13 percent in 1980 and 8 percent today.
Using data from the financial statements of publicly traded companies, the average effective tax rate was 12 percent in 2002, down from 15 percent in 1999, and 18 percent in 1995, according to a study by John Graham, a finance professor at Duke University's Fuqua School of Business.
And Washington is not doing as much as it has in the past to see that companies pay their tax bills. In 2003, the Internal Revenue Service conducted face-to-face audits of only 29 percent of the largest firms - those with assets of more than $250 million. That compares with 34.7 percent in 1999, notes a report by Transactional Records Access Clearinghouse, a government watchdog group. The IRS says it's stepping up tax shelter investigations, and adding 250 examiners to its corporate division this year.
Other factors reducing the corporate tax burden in recent years include more tax shelters, new tax breaks, and the transfer of profits by multinational companies to low-tax foreign nations, figures Martin Sullivan, an economist with Tax Notes, a prominent tax publication. Companies have also written off the cost of stock options from their tax liability, yet largely ignore their cost in their profit and loss statements. Proposed changes in accounting rules may stop this practice.
The issue of corporate taxes was also thrust into the presidential campaign by Democratic Sen. John Kerry's criticisms of President Bush for failing to crack down on corporate tax dodgers. As for Senator Kerry's proposal to trim corporate income taxes by 5 percent, Richard Du Boff, a professor emeritus of economics at Bryn Mawr College, outside Philadelphia, calls it a "bad idea." Kerry has mentioned offsetting any revenue loss by "eliminating tax loopholes that push jobs overseas."
Mr. Du Boff remains unimpressed: "In every way, shape, and form," both Democrats and Republicans have been "doing their best to lower the corporate tax burden," he says. Curiously, economists on both the right and left agree on the need to close corporate tax loopholes.
But members of the congressional tax committees have milked the tax code for years to obtain campaign money, he says. The corporate research and development tax credit, for instance, is only renewed for a year or two at a time. That encourages firms that benefit from the credit to continue to make party donations.
Who bears the brunt of corporate taxes has always been something of a mystery to economists. Do the taxes paid by firms get shifted to consumers in the form of higher prices, to employees in the form of lower wages, or to shareholders by lower dividends and profits? Or to all of them?
"We really don't know," says Sullivan. But if Washington decides more revenues are essential, corporations may not be able to duck the tax man next time
Questions of Interest
By PAUL KRUGMAN
NY Times Op-Ed
Published: April 20, 2004
Yes, the republic is in danger," a friend said. "But what's going to happen to interest rates?" O.K., let's take a break from politics.
Over the past two years, interest rates have been very low. Last June the 10-year bond rate hit a 48-year low. Even three weeks ago the rate was still below 4 percent, a level last seen in 1963.
If the economy fully recovers — or even if investors just think it will — interest rates will rise sharply. In its World Economic Outlook report, to be issued tomorrow, the International Monetary Fund urges the Federal Reserve to prepare the economy for higher rates to "avoid financial market disruption both domestically and abroad."
But how far will rates rise? Let's not get into Greenspan Kremlinology, parsing the chairman's mumbles for clues about the Fed's next move. Let's ask, instead, how much rates will rise if and when normal conditions of supply and demand resume in the bond market.
My calculations keep leading me to a 10-year bond rate of 7 percent, and a mortgage rate of 8.5 percent — with a substantial possibility that the numbers will be even higher. Current rates are about 4.3 and 5.8 percent, respectively; you can see why the I.M.F. is worried about "financial market disruption."
Why 7 percent? Well, in the past 20 years the average yield on 10-year bonds has, in fact, been about 7 percent. Why shouldn't we think of that as the norm?
Some people say that unlike past interest rates, future interest rates won't include a premium for expected inflation. Indeed, over the past 20 years the average inflation rate was 3 percent, considerably higher than recent experience. But in the first three months of 2004, prices rose at an annual rate of more than 5 percent. That number included soaring gasoline prices, but even the "core" price index, which excludes food and energy, rose at a 2.9 percent rate.
More to the point, investors expect considerable inflation over the next 10 years. The spread between "inflation protected" bonds, whose payments are indexed to the Consumer Price Index, and ordinary bonds indicates an expected inflation rate of 2.5 percent during the next decade.
So you can't claim that interest rates will be far below historical levels because inflation is gone. And on the other side, we need to think about the impact of budget deficits.
That last sentence will send the deficit apologists to battle stations (sorry, I can't avoid politics completely). For many years, advocates of tax cuts have insisted that the normal laws of supply and demand don't apply to the bond market, and that government borrowing — unlike borrowing by families or businesses — doesn't affect interest rates. But there's no argument among serious, nonideological economists. For example, a textbook by Gregory Mankiw, now the president's chief economist, declares — in italics — that "when the government reduces national saving by running a budget deficit, the interest rate rises."
The Congressional Budget Office estimates this year's structural budget deficit — what the deficit would be if cyclical factors like a depressed economy went away — at 3.9 percent of G.D.P. That's almost twice the average during the past 20 years. Standard estimates say this should push up 10-year interest rates by around one percentage point.
Finally, there's the upside risk. As I've pointed out before, the twin U.S. budget and trade deficits would set alarm bells ringing if we were a third world country. For now, America gets the benefit of the doubt, but if financial markets decide that we have turned into a banana republic, the sky's the limit for interest rates.
Now for the obvious point: many American families and businesses will be in big trouble if interest rates really do go as high as I'm suggesting. That's why the I.M.F. is urging the Fed to get the word out.
And one suspects that the fund, which, like Alan Greenspan, tends to convey messages in code, is firing a shot across Mr. Greenspan's bow. A number of analysts have accused Mr. Greenspan of fostering a debt bubble in recent years, just as they accuse him of feeding the stock bubble during the 1990's. Just two months ago, Mr. Greenspan went out of his way to emphasize the financial benefits of adjustable-rate, as opposed to fixed-rate, mortgages. Let's hope that not too many families regarded that as useful advice.
