Business Blog: Hoover’s Business Insight Zone

In February, Fast Company ran a special section on oil companies and their efforts at sustainability. You can find an overview and links to various sections here:

Sensible Investing: Oil

The approach of the section puts me in mind of something I’ve been thinking about a lot lately, namely how business evolves to incorporate elements that were previously regarded as externalities. Sometimes it happens because of new regulation, sometimes in response to the concerns of customers, sometimes in response to events beyond any one company’s control. Some historical examples:

• Two hundred years ago, as the Industrial Revolution got underway, workers in Britain, the United States, and other industrializing countries had little legal protection from accidents on the job. If you lost a finger or a hand tending a loom, those were the breaks. Employers would be concerned about this only insofar as they needed to keep a supply of workers close to hand, or else only out of the goodness of their hearts.

  

• A century ago, the U.S. meatpacking industry underwent huge upheaval after Upton Sinclair published The Jungle, which exposed the industry’s health and safety shortcomings. The Pure Food and Drug Act forced meatpackers like Armour and Swift, along with companies in related industries, to come to grips with the demands of food safety — even when that meant large outlays of money.
• In the postwar boom of the 1950s, many major U.S. employers started offering health insurance and similar benefits as a way of attracting workers. What had once been an externality well outside employers’ purview became a key selling point in recruiting new employees.
• During the 1980s, anti-Apartheid activists forced many U.S.-based companies like Coca-Cola to rethink, revamp, or even retract their activities in South Africa, despite the money that the companies were making there. Coke and other companies were forced to bring political externalities into their calculations about how to do business in a major overseas market.
• Since the rise of the World Wide Web in the early 1990s, more companies than ever are offering telecommuting and other flexible work-life arrangements to attract and retain the best talent. In the old days, a company could afford to ignore issues like this, and indeed to insist that workers pattern their time around an 8-to-5 schedule. That seems to be decreasingly true.

Today, of course, the major issue is climate change. For now, companies like Exxon Mobil continue to focus on pumping hydrocarbons out of the ground, convinced — maybe rightly — that oil & gas will continue to be the world’s key sources of energy for decades to come. Other oil majors, like Shell, are taking substantial steps to reduce their carbon footprints now, since they figure that some sort of regulation on carbon (a tax, a cap-and-trade system, or the like) is probably inevitable.

Once upon a time, the key challenges of life were getting enough to eat, avoiding illness or injury, and raising one’s children to adulthood. These days, most of these basic needs are pretty well met for Americans and their economic peers. Yet the world continues to face major problems, including one — climate change — that could be The Problem for this century and beyond.

No doubt different companies and different governments will take varied approaches to bringing these new externalities inside companies’ circle of concern. But however it unfolds, the whole process can’t fail to be interesting.

His post is interesting, fairly short, and well worth a read. Here’s the crux:

In the end, this strike is not about DVD and digital royalties. Ultimately, this strike is about the massive and traumatic erosion of privileges afforded the middle-ranking factory workers. But of course, there’s not a damn thing they or their bosses can do to bring those privileges back. The landscape of media is moving away from large studios, to college dorms, downtown lofts, and suburban garages. Like Madison Avenue, Hollywood won’t disappear. But also like Madison Avenue, it’ll never command the cultural vanguard like it once did.

(Emphasis in original.)

Here’s a sketch of what I’ve been thinking about television and where it’s headed: Read more

This Deal Journal interview with author/professor Lawrence Mitchell intrigues both the business journalist and the historian in me:

Welcome to America, Home of “The Speculation Economy”

DJ: But part of the success of America has been its ability to innovate with finance.

LM: A tiny, tiny fraction, less than 3%, is for new offerings. The rest is secondary trading. If we’re not financing productivity, what are we financing? You start to see this sort of second-order level of remove from production and industry, of finance taking on its own independent logic, where money is moving from one pocket to another but not landing any place where it’s making any difference.

DJ: So we’re in danger of falling down the rabbit hole of finance?

LM: I’m deeply worried that unless we pay attention to restoring a basic balance to our economy, and redirecting finance to its original goal – which was to finance productivity – then we’re going to find ourselves in the long term in very bad shape.

So now I’ll just be scurrying out to lay hands on Prof. Mitchell’s book.

If you’re interested at all in business history, check out this photoset documenting a group visit to the garage where Bill Hewlett and Dave Packard (and their wives!) built up the business of Hewlett-Packard starting in 1939.

The two engineers’ first product was an audio oscillator, and their company — first HP itself, and since 1999 its Agilent spinoff — has always maintained an important position in the world of electrical and electronic instrumentation.

Today’s Company of the Day is JPMorgan Chase. Since the Company of the Day link will take you to something else tomorrow and the next day, I’ll reprint myself here:

A hundred years ago, J. Pierpont Morgan bestrode the financial world like a Colossus, even bailing out the US Treasury when necessary. The modern-day successor to the House of Morgan operates under the watchful eye of Jamie Dimon, a man widely hailed as one of the ablest bankers in the world. Dimon rose to prominence as Sandy Weill’s right-hand man in the 1990s, when Weill was building the Citigroup empire. After a falling-out between the men, Dimon left Citi, and later became the CEO of BANK ONE. He cleaned house at the Chicago-based bank, then helped to mastermind JPMorgan Chase’s purchase of BANK ONE — and his own return to the New York financial scene — in 2004. This $60 billion deal came just three years after the blockbuster merger between retail banking giant Chase Manhattan and stalwart investment bank J.P. Morgan

These days, JPMorgan still trails Citigroup (as well as the acquisition-happy Bank of America) in size, but Dimon has steered the bank to solid profitability on the back of strong earnings in investment banking. But signposts of a downturn loom. When it announced quarterly earnings last month, JPMorgan’s share price fell even though profits were up 20% compared to the same quarter last year. Why? To protect itself from borrowers who might default, JPMorgan boosted its credit-loss provision, which is the amount of money it sets aside to cover bad loans. Reflecting an abrupt decline in enthusiasm for private equity deals, Dimon also warned about “a little freeze in the marketplace” for the financing of leveraged buyouts. While his bank is big enough to weather all sorts of storms, it has to find profits somewhere. But if the buyout market gets as bad as the housing market, the question is, Where will it find them?

Since I wrote that, the Wall Street Journal’s “Deal Journal” blog posted an informative item that talks about Mr. Morgan’s role in stemming the 1907 credit crisis. The piece also considers parallels between the situations 100 years ago and today. It’s short and well worth reading:

Breaking Credit Market News . . . From 1907

My own historical studies* suggest that history seldom repeats itself exactly enough to allow us to predict the outcomes of complex processes. No doubt life would be easier if we could literally follow the old saw that “History has a way of repeating itself” or Santayana’s dictum that “Those who cannot remember the past are condemned to repeat it.” What we need, instead, is an adequate understanding of the past combined with the flexibility of mind to apply those lessons to the present and future. When you think about it, that’s a pretty good formula for what we call wisdom. Here’s hoping enough movers and shakers in the financial markets know their history (not just 1907, but the Oil Embargo era of the 1970s, the bubble-and-crash scenarios of 1987 and 2000, and the Asian market crises and Long-Term Capital Management collapse of the late 1990s) and understand how to apply it to the curious mix of circumstances that affect the markets now.

~

* Heaven help me, I’m pursuing a Ph.D. in US history at my beloved alma mater alongside my work for Hoover’s.