FIRST FINANCIAL CONSULTING GROUP

WORKING OUT OF DEBT: HOW ARE WE DOING? A MCKINSEY REPORT JANUARY 2012

2012-02-11T14:10:00.003-05:00

An update of our research on the efforts of developed countries to work out from under a massive overhang of debt shows how uneven progress has been. US households have made the greatest gains so far.

The deleveraging process that began in 2008 is proving to be long and painful. Historical experience, particularly post–World War II debt reduction episodes, which the McKinsey Global Institute reviewed in a report two years ago, suggested this would be the case.1 And the eurozone’s debt crisis is just the latest demonstration of how toxic the consequences can be when countries have too much debt and too little growth.

We recently took another look forward and back—at the relevant lessons from history about how governments can support economic recovery amid deleveraging and at the signposts business leaders can watch to see where economies are in that process. We reviewed the experience of the United States, the United Kingdom, and Spain in depth, but the signals should be relevant for any country that’s deleveraging.

Deleveraging: Where are we now?

The financial crisis highlighted the danger of too much debt, a message that has only been reinforced by Europe’s recent sovereign-debt challenges. And new McKinsey Global Institute research shows that the unwinding of debt—or deleveraging—has barely begun. Since 2008, debt ratios have grown rapidly in France, Japan, and Spain and have edged downward only in Australia, South Korea, and the United States. Overall, the ratio of debt to GDP has grown in the world’s ten largest economies.

Overall, the deleveraging process has only just begun. During the past two and a half years, the ratio of debt to GDP, driven by rising government debt, has actually grown in the aggregate in the world’s ten largest developed economies (for more, see sidebar, “Deleveraging: Where are we now?”). Private-sector debt has fallen, however, which is in line with historical experience: overextended households and corporations typically lead the deleveraging process; governments begin to reduce their debts later, once they have supported the economy into recovery.

Different countries, different paths

In the United States, the United Kingdom, and Spain, all of which experienced significant credit bubbles before the financial crisis of 2008, households have been reducing their debt at different speeds. The most significant reduction occurred among US households. Let’s review each country in turn.

The United States: Light at the end of the tunnel

Household debt outstanding has fallen by $584 billion (4 percent) from the end of 2008 through the second quarter of 2011 in the United States. Defaults account for about 70 and 80 percent of the decrease in mortgage debt and consumer credit, respectively. A majority of the defaults reflect financial distress: overextended homeowners who lost jobs during the recession or faced medical emergencies found that they could not afford to keep up with debt payments. It is estimated that up to 35 percent of the defaults resulted from strategic decisions by households to walk away from their homes, since they owed far more than their properties were worth. This option is more available in the United States than in other countries, because in 11 of the 50 states—including hard-hit Arizona and California—mortgages are nonrecourse loans, so lenders cannot pursue the other assets or income of borrowers who default. Even in recourse states, US banks historically have rarely pursued borrowers.

Historical precedent suggests that US households could be up to halfway through the deleveraging process, with one to two years of further debt reduction ahead. We base this estimate partly on the long-term trend line for the ratio of household debt to disposable income. Americans have constantly increased their debt levels over the past 60 years, reflecting the development of mortgage markets, consumer credit, student loans, and other forms of credit. But after 2000, the ratio of household debt to income soared, exceeding the trend line by about 30 percentage points at the peak As of the second quarter of 2011, this ratio had fallen by 11 percent from the peak; at the current rate of deleveraging, it would return to trend by mid-2013. Faster growth of disposable income would, of course, speed this process.

We came to a similar conclusion when we compared the experiences of US households with those of households in Sweden and Finland in the 1990s. During that decade, these Nordic countries endured similar banking crises, recessions, and deleveraging. In both, the ratio of household debt to income declined by roughly 30 percent from its peak. As Exhibit 2 indicates, the United States is closely tracking the Swedish experience, and the picture looks even better considering that clearing the backlog of mortgages already in the foreclosure pipeline could reduce US household debt ratios by an additional six percentage points.

As for the debt service ratio of US households, it’s now down to 11.5 percent—well below the peak of 14.0 percent, in the third quarter of 2007, and lower than it was even at the start of the bubble, in 2000. Given current low interest rates, this metric may overstate the sustainability of current US household debt levels, but it provides another indication that they are moving in the right direction.

Nonetheless, after US consumers finish deleveraging, they probably won’t be as powerful an engine of global growth as they were before the crisis. That’s because home equity loans and cash-out refinancing, which from 2003 to 2007 let US consumers extract $2.2 trillion of equity from their homes—an amount more than twice the size of the US fiscal-stimulus package—will not be available. The refinancing era is over: housing prices have declined, the equity in residential real estate has fallen severely, and lending standards are tighter. Excluding the impact of home equity extraction, real consumption growth in the pre-crisis years would have been around 2 percent per annum—similar to the annualized rate in the third quarter of 2011.

The United Kingdom: Debt has only just begun to fall

Three years after the start of the financial crisis, UK households have deleveraged only slightly, with the ratio of debt to disposable income falling from 156 percent in the fourth quarter of 2008 to 146 percent in second quarter of 2011. This ratio remains significantly higher than that of US households at the bubble’s peak. Moreover, the outstanding stock of household debt has fallen by less than 1 percent. Residential mortgages have continued to grow in the United Kingdom, albeit at a much slower pace than they did before 2008, and this has offset some of the £25 billion decline in consumer credit.

Still, many UK residential mortgages may be in trouble. The Bank of England estimates that up to 12 percent of them may be in some kind of forbearance process, and an additional 2 percent are delinquent— similar to the 14 percent of US mortgages that are in arrears, have been restructured, or are now in the foreclosure pipeline (Exhibit 3). This process of quiet forbearance in the United Kingdom, combined with record-low interest rates, may be masking significant dangers ahead. Some 23 percent of UK households report that they are already “somewhat” or “heavily” burdened in paying off unsecured debt.2 Indeed, the debt payments of UK households are one-third higher than those of their US counterparts—and 10 percent higher than they were in 2000, before the bubble. This statistic is particularly problematic because at least two-thirds of UK mortgages have variable interest rates, which expose borrowers to the potential for soaring debt payments should interest rates rise.

Given the minimal amount of deleveraging among UK households, they do not appear to be following Sweden or Finland on the path of significant, rapid deleveraging. Extrapolating the recent pace of UK household deleveraging, we find that the ratio of household debt to disposable income would not return to its long-term trend until 2020. Alternatively, it’s possible that developments in UK home prices, interest rates, and GDP growth will cause households to reduce debt slowly over the next several years, to levels that are more sustainable but still higher than historic trends. Overall, the United Kingdom needs to steer a difficult course that reduces household debt steadily, but at a pace that doesn’t stifle growth in consumption, which remains the critical driver of UK GDP

Spain: The long unwinding road

Since the credit crisis first broke, Spain’s ratio of household debt to disposable income has fallen by 4 percent and the outstanding stock of household debt by just 1 percent. As in the United Kingdom, home mortgages and other forms of credit have continued to grow while consumer credit has fallen sharply.

Spain’s mortgage default rate climbed following the crisis but remains relatively low, at approximately 2.5 percent, thanks to low interest rates. The number of mortgages in forbearance has also risen since the crisis broke, however. And more trouble may lie ahead. Almost half of the households in the lowest-income quintile face debt payments representing more than 40 percent of their income, compared with slightly less than 20 percent for low-income US households. Meanwhile, the unemployment rate in Spain is now 21.5 percent, up from 9 percent in 2006. For now, households continue to make payments to avoid the country’s conservative recourse laws, which allow lenders to go after borrowers’ assets and income for a long period.

In Spain, unlike most other developed economies, the corporate sector’s debt levels have risen sharply over the past decade. A significant drop in interest rates after the country joined the eurozone, in 1999, unleashed a run-up in real-estate spending and an enormous expansion in corporate debt. Today, Spanish corporations hold twice as much debt relative to national output as do US companies, and six times as much as German companies. Debt reduction in the corporate sector may weigh on growth in the years to come

Signposts for recovery

Paring debt and laying a foundation for sustainable long-term growth should take place simultaneously, difficult as that may seem. For economies facing this dual challenge today, a review of history offers key lessons. Three historical episodes of deleveraging are particularly relevant: those of Finland and Sweden in the 1990s and of South Korea after the 1997 financial crisis. All these countries followed a similar path: bank deregulation (or lax regulation) led to a credit boom, which in turn fueled real-estate and other asset bubbles. When they collapsed, these economies fell into deep recession, and debt levels fell.

In all three countries, growth was essential for completing a five- to seven-year-long deleveraging process. Although the private sector may start to reduce debt even as GDP contracts, significant public-sector deleveraging, absent a sovereign default, typically occurs only when GDP growth rebounds, in the later years of deleveraging (Exhibit 4). That’s true because the primary factor causing public deficits to rise after a banking crisis is declining tax revenue, followed by an increase in automatic stabilizer payments, such as unemployment benefits.3 A rebound of economic growth in most deleveraging episodes allows countries to grow out of their debts, as the rate of GDP growth exceeds the rate of credit growth.

No two deleveraging economies are the same, of course. As relatively small economies deleveraging in times of strong global economic expansion, Finland, South Korea, and Sweden could rely on exports to make a substantial contribution to growth. Today’s deleveraging economies are larger and face more difficult circumstances.

Still, historical experience suggests five questions that business and government leaders should consider as they evaluate where today’s deleveraging economies are heading and what policy priorities to emphasize

1. Is the banking system stable?

In Finland and Sweden, banks were recapitalized and some were nationalized. In South Korea, some banks were merged and some were shuttered, and foreign investors for the first time got the right to become majority investors in financial institutions. The decisive resolution of bad loans was critical to kick-start lending in the economic- rebound phase of deleveraging.

The financial sectors in today’s deleveraging economies began to deleverage significantly in 2009, and US banks have accomplished the most in that effort. Even so, banks will generally need to raise significant amounts of additional capital in the years ahead to comply with Basel III and national regulations. In most European countries, business demand for credit has fallen amid slow growth. The supply of credit, to date, has not been severely constrained. A continuation of the eurozone crisis, however, poses a risk of a significant credit contraction in 2012 if banks are forced to reduce lending in the face of funding constraints. Such a forced deleveraging would significantly damage the region’s ability to escape recession.

2. Are structural reforms in place?

In the 1990s, each of the crisis countries embarked on a program of structural reform. For Finland and Sweden, accession to the European Union led to greater economies of scale and higher direct investment. Deregulation in specific industry sectors—for example, retailing—also played an important role.4 South Korea followed a remarkably similar course as it restructured its large corporate conglomerates, or chaebol, and opened its economy wider to foreign investment. These reforms unleashed growth by increasing competition within the economy and pushing companies to raise their productivity.

Today’s troubled economies need reforms tailored to the circumstances of each country. The United States, for instance, ought to streamline and accelerate regulatory approvals for business investment, particularly by foreign companies. The United Kingdom should revise its planning and zoning rules to enable the expansion of successful high-growth cities and to accelerate home building. Spain should drastically simplify business regulations to ease the formation of new companies, help improve productivity by promoting the creation of larger ones, and reform labor laws.5 Such structural changes are particularly important for Spain because the fiscal constraints now buffeting the European Union mean that the country cannot continue to boost its public debt to stimulate the economy. Moreover, as part of the eurozone, Spain does not have the option of currency depreciation to stimulate export growth.

3. Have exports surged?

In Sweden and Finland, exports grew by 10 and 9.4 percent a year, respectively, between 1994 and 1998, when growth rebounded in the later years of deleveraging. This boom was aided by strong export-oriented companies and the significant currency devaluations that occurred during the crisis (34 percent in Sweden from 1991 to 1993). South Korea’s 50 percent devaluation of the won, in 1997, helped the nation boost its share of exports in electronics and automobiles.

Even if exports alone cannot spur a broad recovery, they will be important contributors to economic growth in today’s deleveraging economies. In this fragile environment, policy makers must resist protectionism. Bilateral trade agreements, such as those recently passed by the United States, can help. Salvaging what we can from the Doha round of trade talks will be important. Service exports, including the “hidden” ones that foreign students and tourists generate, can be a key component of export growth in the United Kingdom and the United States.

4. Is private investment rising?

Another important factor that boosted growth in Finland, South Korea, and Sweden was the rapid expansion of investment. In Sweden, it rose by 9.7 percent annually during the economic rebound that began in 1994. Accession to the European Union was part of the impetus. Something similar happened in South Korea after 1998 as barriers to foreign direct investment fell. These soaring inflows helped offset slower private-consumption growth as households deleveraged.

Given the current very low interest rates in the United Kingdom and the United States, there is no better time to embark upon investments. Those for infrastructure represent an important enabler, and today there are ample opportunities to renew the aging energy and transportation networks in those countries. With public funding limited, the private sector can play an important role in providing equity capital, if pricing and regulatory structures enable companies to earn a fair return.

5. Has the housing market stabilized?

During the three historical episodes discussed here, the housing market stabilized and began to expand again as the economy rebounded. In the Nordic countries, equity markets also rebounded strongly at the start of the recovery. This development provided additional support for a sustainable rate of consumption growth by further increasing the “wealth effect” on household balance sheets.

In the United States, new housing starts remain at roughly one-third of their long-term average levels, and home prices have continued to decline in many parts of the country through 2011. Without price stabilization and an uptick in housing starts, a stronger recovery of GDP will be difficult,6 since residential real-estate construction alone contributed 4 to 5 percent of GDP in the United States before the housing bubble. Housing also spurs consumer demand for durable goods such as appliances and furnishings and therefore boosts the sale and manufacture of these products.

At a time when the economic recovery is sputtering, the eurozone crisis threatens to accelerate, and trust in business and the financial sector is at a low point, it may be tempting for senior executives to hunker down and wait out macroeconomic conditions that seem beyond anyone’s control. That approach would be a mistake. Business leaders who understand the signposts, and support government leaders trying to establish the preconditions for growth, can make a difference to their own and the global economy.

JANUARY 2012 •

Karen Croxson, Susan Lund, and Charles Roxburgh
Source: McKinsey Global Institute

The authors wish to thank Toos Daruvala and James Manyika for their thoughtful input, as well as Albert Bollard and Dennis Bron for their contributions to the research supporting this article.

About the Authors

Karen Croxson, a fellow of the McKinsey Global Institute (MGI), is based in McKinsey’s London office; Susan Lund is director of research at MGI and a principal in the Washington, DC, office; Charles Roxburgh is a director of MGI and a director in the London office.

THE RETIREE MARKET: A TRILLION DOLLAR MARKET - HOW MANY ADVISORS ARE PROFESSIONALLY PREPARED?

2012-01-21T07:30:00.002-05:00

AS a large segment of Canada's population moves into retirement, successful financial advisors will be those who tailor their practices to serving the needs of retirees, according to a recent Investor Economics report.

In the past two decades, the baby boomers, those born after the Second World War between 1946 and 1965, became investors and generated a tremendous amount of growth in the wealth management business. "In those years, Canadian boomers moved from being borrowers to investors," Goshka Folda, Investor Economic's Toronto-based senior managing director, noted in an interview discussing the highlights of The 2011 Fee-based Report. "Their assets under management - investments, assets in their chequing and savings accounts, and fixed-term deposits, but excluding real estate - went from $335 billion in 1997 to $1.1 trillion at the end of 2010.

"They were fortunate enough to benefit from the longest-running bull market of the 20th century that continued into the 21st century, with a disruption when the technology bubble burst," she added." And providers of wealth services also benefitted from this trend."

But boomers are now moving uut uf their accumulation phase as they retire from the workforce. Investor Economics' research shows there were 3.4 million Canadian households over the age of 65 at the end of 201O. "We expect that number to reach 4.7 million by 2020," Ms. Folda said. "By then, one out of every three households will bc made up of retired people who will control $4 of every $10 under management."

Challenge for wealth managers

This poses a real challenge for wealth managers, she added. "In 2020, Canadians over the age of 65 will control 40% of all financial wealth under management. And one out of every three advisors' clients will be part of this group."

This is no surprise to Canada's financial services industry. The 2011 Fee-based Report notes that investment product manufacturers have already introduced a range of products designed for people in retirement, including guaranteed withdrawal bcnefit funds, segregated funds, principal-protected notes, reverse mortgages and payout annuities.

"A long scquence of products has emerged and other products have been repositioned to serve retirees," Ms. Folda said. These address a variety

"In 2020, Canadians over the age of 65 will control 40% of all financial wealth under man¬agement. And one out of every three advisors' clients will be part of this group."

- Goshka Folda

of needs such as principal protections, guaranteed income, risk management, tax efficiency and pre-assembled advice, among others.

The product landscape has exploded in terms of solutions, she noted, "but manufacturers realize there is no single product that will satisfy all the needs of a retired household.

While it is fairly easy to determine the risk profile and appetite for investment growth of investors who are in the accumulative phase, this doesn't hold true for retired households. Retirees have a variety of needs that need to be addressed, including risk management, the need for principal protection, income planning, tax planning and estate planning. No one single product will do it."

Expanding expertise

This bodes well for advisors as retired clients will need financial advice on how to combine these products to scrve their individual needs. "The product shelf is already there," Ms. Folda said. "But retirees will need help in putting together baskets of the right products for them."

But advisors may need to expand their areas of expertise in order to serve this market adequately. They'll have to address issues beyond the investment strategy that have a direct bearing on retired clients' financial standing, the report notes, such as housing, health issues, family dynamics, and the needs of spouses and children.

Retirement planning designations

Most advisors realize that the advice they'll give clients in retirement will differ from the advice they gave in the accumulative phase, and the financial services industry has been quick to position its members as retirement planning experts. "We've uncovered a lot of designations," said Guy Armstrong, a senior consultant with Investor Ecunumics. "In the U.S. where there has been a high uptake on retirement planning designations, we found 14 bodies conferring these designations and a total of 24 retirement planning designations. Canada has seen a stcady growth, with seven bodies conferring retirement planning designations and 11 designations, but our regulatory environment has prevented a real explosion."

And giving advice to a retired client base will be complicated by the fact that, in Canada, financial advice has always focused on the delivery of investment or insurance products, Ms. Folda noted. "The way in which firms and advisors generate their revenues is so highly linked to the investment strategy component of financial planning. But the focus has to shift from prod-
ucts to holistic financial planning. The advisor will need to address issues beyond the invcstment strategy."'

The small number of fee-only planners practising in Canada has only a limited reach into the Canadian population. "The main channels now delivering advice are bank and credit union branch advisors, full-service brokers, financial advisors, including MFDA-Iicensed advisors, and insurance advisors. These are not necessarily all commission-based advisors," Ms. Folda said, "but the major focus of their work is executing investment or insurance strategies. The clients of these channels can now say they are being given financial planning services, sometimes at no extra cost." Fee-based planners need to give serious consideration to how thcy position themselves in the market.

Content of retirement plans

In the coming year, Investor Economics will focus on getting a measure of the number and the content of retirement plans that are being delivered in the industry, Mr. Armstrong said.

"With the exception of the fee-based advisors, everyone else is delivering financial plans at no additional charge to clients, but the content of these plans are all over the map."

Another challenge that fee-based advisors face, he noted, is that the channels that are currently delivering advice will do their best to hold onto their clients as they move into retirement. Some firms have already started to help clients move into retirement with programs that focus on understanding retirement lifestyle goals and financial needs. These include RBC Royal Bank's Your Future By Design and Sun Life Financial's My Retirement Cafe.

Fee-based business

But it is possible to run a fee-based business, Mr. Armstrong said. 'The trust business has always offered services for fees, and its clients readily accept this arrangement."

With a growing number of retired clients, advisors will also have to come to terms with the fact that retirement is a payout phase and, in many cases, clients' capital will be depleted as they age. To counter this, Ms. Fold a said advisors will need to develop strategies to engage younger generations. "A proper application of retirement planning is in itself a good way to engage younger family members. Thc fact that mom and dad's needs are being taken care of speaks well for the advisor. And the fact that the parents' estate planning wishes were carried out is another big plus."

The greying of Canada's population should also prompt advisors to take a team approach to their businesses, she added. This will allow the client to benefit from the skills and areas of expertise or different professionals.

ROSEMARY MCCRACKEN
The Insurance and Investment Journal
January 2012

UNDERSTANDING WHAT DRIVES US HEALTH CARE SPENDING

2012-01-14T07:09:00.001-05:00

US employers, health care providers, and other stakeholders are running hard to prepare for implementation of health care reform under the Affordable Care Act. In a new report, Accounting for the cost of US health care: Pre-reform trends and the impact of the recession, McKinsey’s Center for US Health System Reform examines trends from 2006–09, a period when health care spending reached record levels, and helps frame the forces shaping the health care industry in this period of rapid change.

Read about the findings or download the full report on the center’s Web site.

http://healthreform.mckinsey.com/Home/Insights/Latest_thinking/Accounting_for_the_cost_of_US_health_care.aspx

CARPE DIEM: The Energy Treasures Beneath Our Feet

2012-01-14T06:32:00.000-05:00

CARPE DIEM: The Energy Treasures Beneath Our Feet

TD AGE OF RETIREMENT REPORT - 01 06 2012

2012-01-06T15:49:00.001-05:00

Report –

Manitoba and Saskatchewan Fact Sheet

Results for the TD Report on the Age of Retirement were collected through a custom, online survey fielded by Environics

Research Group. A total of 1,006 completed surveys were collected with Canadians aged 25 – 64 who are not retired, including 132 in Manitoba and Saskatchewan. Data was collected between November 22 and December 2, 2011.

Crystal Wong, Senior Regional Manager, TD Waterhouse Financial Planning, based in Calgary, Alberta, is available to discuss the results of the TD Age of Retirement Report and offer advice to residents of Manitoba and Saskatchewan for how to reach retirement in good financial shape.

Age of Retirement in Manitoba and Saskatchewan

The average age people in Manitoba and Saskatchewan think they will retire is 61.

Residents of these provinces are the most likely in the country to say that if given the opportunity, they would retire before age 65 (74% versus 65% nationally).

o More than one quarter (27%) expect they will be older than 65 when they retire.

Residents of Manitoba and Saskatchewan who will keep working past the age of 65, were equally likely to cite a variety of reasons why they’ll stay in the workforce:

o They won’t have enough money saved and will still have debt to repay or kids to support (44%).

o They won’t have enough money to maintain the lifestyle they want (44%).

o Working gives a sense of purpose and they can’t imagine not working in some capacity (44%).

o Another 11% said they love their job and will still have goals to achieve.

Manitoba and Saskatchewan Residents and their Finances

While 61 may be the average expected retirement age in Manitoba and Saskatchewan, some may not be taking into account the amount of savings and investments they’ll need to retire comfortably.

The majority (56%) have less than $100,000 in household financial assets, not including company pensions, life insurance policies and home equity.

o 15% say they have no financial assets whatsoever.

Residents of Manitoba and Saskatchewan on Debt and Retirement

Another major consideration when it comes to retirement is debt. 40% of residents in Manitoba and Saskatchewan expect to have debt when they retire; 15% say it will be a significant amount of debt.

Of those who expect to carry debt into retirement:

o 59% will carry consumer debt into retirement.

o 51% will carry mortgage debt into retirement.

o 6% will carry investment loans into retirement.

o 13% classify their debt as “other”.

What does retirement mean for residents of Manitoba and Saskatchewan?

Residents of Manitoba and Saskatchewan are the most likely in the country (51% versus 47% nationally) to say the see retirement as a gradual slowing down. They’ll likely continue to work part-time or volunteer, but will enjoy
spending more time with family.

36% say retirement is a new beginning and a chance to follow their passions, start new ventures, experience new things and live the life they weren’t able to while working.

Contact Information

For more information or to set up an interview, please contact:

Ali Duncan Martin

TD Bank Group

416-983-4412

Karen Williams / Steve Presant

Paradigm Public Relations

416-203-2223

THE DELUSION - RETIREMENT AT 65

2012-01-06T14:27:00.003-05:00

You can't retire early on $100,000

Talk about a gap between hope and reality. It may be no surprise that every generation of Canadians wants to retire before the traditional age of 65, but the fact that most expect to head into the sunset by 61 doesn't even come close to jibing with our level of savings.

Most have rosy dreams of freedom at 61, according to a TD Waterhouse survey released Thursday. And the younger they are, the earlier they think they can retire. Generation X (ages 31 to 46) plan to do so by 60 while Generation Y (ages 25 to 30) would prefer to start their golden years while still in their 50s (by age 59).

But 59% of the 1,006 polled late in 2011 have less than $100,000 in household financial assets. Um, hello?

While that doesn't take into consideration employer pensions, life insurance policies or home equity, there seems to be an egregious disconnect here. Most government pensions don't start till 65 and $100,000 could be counted on to generate only $5,000 a year (assuming optimistically you could get 5% a year from that much capital).

Debt first, then think of golden years

You can take reduced benefits from the Canada Pension Plan as early as 60 but that, plus $5,000 a year from investments, would barely cover property taxes and $100 a week for food.

Ironically, 61 is the year I currently plan to establish my own financial independence, two years from now. I certainly wouldn't contemplate that with only $100,000 in financial assets or, for that matter, 10 times as much. Given current trends in longevity, medicine and fitness, most of us will enjoy three or four more decades of life after 60.

This came home to me when I interviewed 75-year old author Gordon Pape earlier this week in our newsroom. I witnessed a short chat between him and a Post colleague, who also continues to work full-time post-65. It left me thinking I should postpone my own "Findependence Day" - not because of financial necessity but because meaningful work is probably the best way to stay mentally and emotionally healthy over the long haul.

I doubt the two fellows chatting in the newsroom are constrained financially. However, the vast majority of Canadians cited in the TD Age of Retirement report are in a much weaker financial position.

TD finds 16% of Canadians report having "no financial assets whatsoever". Sixty-two per cent of Gen Xers have less than $100.000 as do more than half 53%) of Baby Boomers (aged 47 to 64).

But Boomers are somewhat more realistic about their retirement date: They don't expect to leave the workforce until 64, says Cynthia Caskey, vice-president and portfolio manager at TD Waterhouse Private Investment Advice.

Caskey says early retirement is possible but only if you have a plan and start saving and investing early enough. Every decent financial book I've read urges young people to start saving early in life. Unfortunately, the survey suggests not only do most Canadians fail to do this, many are still mired in debt well into their working lives: 44% expect to carry some debt into retirement, including 13% who expect to retire with a significant amount of debt

In my experience, the only people who can retire in their late 50s are those with employer-provided defined-benefit pensions they joined in their 20s, or those who faithfully socked away 10% to 15% of their earnings in RRSPs since they joined the workforce decades earlier.

There will always be the fortunate few who win lotteries, marry money or strike it rich in business or entertainment, but broadly speaking, younger folk should abandon the pipe dream of retiring at 55 or 60 and resign themselves to working at least five or 10 years longer.

If they don't enjoy their current professions, they should take steps to find something they ean enjoy well into their 70s, even if it won't be financially necessary.

The name of the game is to completely eliminate debt, then build wealth. If you haven't even got out of the hole, you have no business fantasizing about early retirement.

JONATHAN CHEVREAU
Comment
Financial Post
01 06 2012

Jonathan Chevreau is the author of Findependence Day,

THE FINANCIAL CRASH OF 2007 – 2008 – ITS GLOBAL SOCIO ECONOMIC IMPACT

2011-12-23T09:25:00.001-05:00

12 22 2011

Barbara & John Ehrenreich - The Making of the American 99% and the Collapse of The Middle Class
By Barbara Ehrenreich and John Ehrenreich

“Class happens when some men, as a result of common experiences (inherited or shared), feel and articulate the identity of their interests as between themselves, and as against other men whose interests are different from (and usually opposed to) theirs.”

-- E.P. Thompson, The Making of the English Working Class

The “other men” (and of course women) in the current American class alignment are those in the top 1% of the wealth distribution -- the bankers, hedge-fund managers, and CEOs targeted by the Occupy Wall Street movement. They have been around for a long time in one form or another, but they only began to emerge as a distinct and visible group, informally called the “super-rich,” in recent years.

Extravagant levels of consumption helped draw attention to them: private jets, multiple 50,000 square-foot mansions, $25,000 chocolate desserts embellished with gold dust. But as long as the middle class could still muster the credit for college tuition and occasional home improvements, it seemed churlish to complain. Then came the financial crash of 2007-2008, followed by the Great Recession, and the 1% to whom we had entrusted our pensions, our economy, and our political system stood revealed as a band of feckless, greedy narcissists, and possibly sociopaths.

Still, until a few months ago, the 99% was hardly a group capable of (as Thompson says) articulating “the identity of their interests.” It contained, and still contains, most “ordinary” rich people, along with middle-class professionals, factory workers, truck drivers, and miners, as well as the much poorer people who clean the houses, manicure the fingernails, and maintain the lawns of the affluent.

It was divided not only by these class differences, but most visibly by race and ethnicity -- a division that has actually deepened since 2008. African-Americans and Latinos of all income levels disproportionately lost their homes to foreclosure in 2007 and 2008, and then disproportionately lost their jobs in the wave of layoffs that followed. On the eve of the Occupy movement, the black middle class had been devastated. In fact, the only political movements to have come out of the 99% before Occupy emerged were the Tea Party movement and, on the other side of the political spectrum, the resistance to restrictions on collective bargaining in Wisconsin.

But Occupy could not have happened if large swaths of the 99% had not begun to discover some common interests, or at least to put aside some of the divisions among themselves. For decades, the most stridently promoted division within the 99% was the one between what the right calls the “liberal elite” -- composed of academics, journalists, media figures, etc. -- and pretty much everyone else.

As Harper’s Magazine columnist Tom Frank has brilliantly explained, the right earned its spurious claim to populism by targeting that “liberal elite,” which supposedly favors reckless government spending that requires oppressive levels of taxes, supports “redistributive” social policies and programs that reduce opportunity for the white middle class, creates ever more regulations (to, for instance, protect the environment) that reduce jobs for the working class, and promotes kinky countercultural innovations like gay marriage. The liberal elite, insisted conservative intellectuals, looked down on “ordinary” middle- and working-class Americans, finding them tasteless and politically incorrect. The “elite” was the enemy, while the super-rich were just like everyone else, only more “focused” and perhaps a bit better connected.

Of course, the “liberal elite” never made any sociological sense. Not all academics or media figures are liberal (Newt Gingrich, George Will, Rupert Murdoch). Many well-educated middle managers and highly trained engineers may favor latte over Red Bull, but they were never targets of the right. And how could trial lawyers be members of the nefarious elite, while their spouses in corporate law firms were not?

A Greased Chute, Not a Safety Net

“Liberal elite” was always a political category masquerading as a sociological one. What gave the idea of a liberal elite some traction, though, at least for a while, was that the great majority of us have never knowingly encountered a member of the actual elite, the 1% who are, for the most part, sealed off in their own bubble of private planes, gated communities, and walled estates.

The authority figures most people are likely to encounter in their daily lives are teachers, doctors, social workers, and professors. These groups (along with middle managers and other white-collar corporate employees) occupy a much lower position in the class hierarchy. They made up what we described in a 1976 essay as the “professional managerial class.” As we wrote at the time, on the basis of our experience of the radical movements of the 1960s and 1970s, there have been real, longstanding resentments between the working-class and middle-class professionals. These resentments, which the populist right cleverly deflected toward “liberals,” contributed significantly to that previous era of rebellion’s failure to build a lasting progressive movement.

As it happened, the idea of the “liberal elite” could not survive the depredations of the 1% in the late 2000s. For one thing, it was summarily eclipsed by the discovery of the actual Wall Street-based elite and their crimes. Compared to them, professionals and managers, no matter how annoying, were pikers. The doctor or school principal might be overbearing, the professor and the social worker might be condescending, but only the 1% took your house away.

There was, as well, another inescapable problem embedded in the right-wing populist strategy: even by 2000, and certainly by 2010, the class of people who might qualify as part of the “liberal elite” was in increasingly bad repair. Public-sector budget cuts and corporate-inspired reorganizations were decimating the ranks of decently paid academics, who were being replaced by adjunct professors working on bare subsistence incomes. Media firms were shrinking their newsrooms and editorial budgets. Law firms had started outsourcing their more routine tasks to India. Hospitals beamed X-rays to cheap foreign radiologists. Funding had dried up for nonprofit ventures in the arts and public service. Hence the iconic figure of the Occupy movement: the college graduate with tens of thousands of dollars in student loan debts and a job paying about $10 a hour, or no job at all.

These trends were in place even before the financial crash hit, but it took the crash and its grim economic aftermath to awaken the 99% to a widespread awareness of shared danger. In 2008, “Joe the Plumber’s” intention to earn a quarter-million dollars a year still had some faint sense of plausibility. A couple of years into the recession, however, sudden downward mobility had become the mainstream American experience, and even some of the most reliably neoliberal media pundits were beginning to announce that something had gone awry with the American dream.

Once-affluent people lost their nest eggs as housing prices dropped off cliffs. Laid-off middle-aged managers and professionals were staggered to find that their age made them repulsive to potential employers. Medical debts plunged middle-class households into bankruptcy. The old conservative dictum -- that it was unwise to criticize (or tax) the rich because you might yourself be one of them someday -- gave way to a new realization that the class you were most likely to migrate into wasn’t the rich, but the poor.

And here was another thing many in the middle class were discovering: the downward plunge into poverty could occur with dizzying speed. One reason the concept of an economic 99% first took root in America rather than, say, Ireland or Spain is that Americans are particularly vulnerable to economic dislocation. We have little in the way of a welfare state to stop a family or an individual in free-fall. Unemployment benefits do not last more than six months or a year, though in a recession they are sometimes extended by Congress. At present, even with such an extension, they reach only about half the jobless. Welfare was all but abolished 15 years ago, and health insurance has traditionally been linked to employment.

In fact, once an American starts to slip downward, a variety of forces kick in to help accelerate the slide. An estimated 60% of American firms now check applicants' credit ratings, and discrimination against the unemployed is widespread enough to have begun to warrant Congressional concern. Even bankruptcy is a prohibitively expensive, often crushingly difficult status to achieve. Failure to pay government-imposed fines or fees can even lead, through a concatenation of unlucky breaks, to an arrest warrant or a criminal record. Where other once-wealthy nations have a safety net, America offers a greased chute, leading down to destitution with alarming speed.

Making Sense of the 99%

The Occupation encampments that enlivened approximately 1,400 cities this fall provided a vivid template for the 99%’s growing sense of unity. Here were thousands of people -- we may never know the exact numbers -- from all walks of life, living outdoors in the streets and parks, very much as the poorest of the poor have always lived: without electricity, heat, water, or toilets. In the process, they managed to create self-governing communities.

General assembly meetings brought together an unprecedented mix of recent college graduates, young professionals, elderly people, laid-off blue-collar workers, and plenty of the chronically homeless for what were, for the most part, constructive and civil exchanges. What started as a diffuse protest against economic injustice became a vast experiment in class building. The 99%, which might have seemed to be a purely aspirational category just a few months ago, began to will itself into existence.

Can the unity cultivated in the encampments survive as the Occupy movement evolves into a more decentralized phase? All sorts of class, racial, and cultural divisions persist within that 99%, including distrust between members of the former “liberal elite” and those less privileged. It would be surprising if they didn’t. The life experience of a young lawyer or a social worker is very different from that of a blue-collar worker whose work may rarely allow for biological necessities like meal or bathroom breaks. Drum circles, consensus decision-making, and masks remain exotic to at least the 90%. “Middle class” prejudice against the homeless, fanned by decades of right-wing demonization of the poor, retains much of its grip.

Sometimes these differences led to conflict in Occupy encampments -- for example, over the role of the chronically homeless in Portland or the use of marijuana in Los Angeles -- but amazingly, despite all the official warnings about health and safety threats, there was no “Altamont moment”: no major fires and hardly any violence. In fact, the encampments engendered almost unthinkable convergences: people from comfortable backgrounds learning about street survival from the homeless, a distinguished professor of political science discussing horizontal versus vertical decision-making with a postal worker, military men in dress uniforms showing up to defend the occupiers from the police.

Class happens, as Thompson said, but it happens most decisively when people are prepared to nourish and build it. If the “99%” is to become more than a stylish meme, if it’s to become a force to change the world, eventually we will undoubtedly have to confront some of the class and racial divisions that lie within it. But we need to do so patiently, respectfully, and always with an eye to the next big action -- the next march, or building occupation, or foreclosure fight, as the situation demands.

By Barbara Ehrenreich and John Ehrenreich
Posted on December 15, 2011
http://www.tomdispatch.com/blog/175480/

WATCHDOG WARNS CANADA GOVERNMENTS OF FISCAL CRUNCH

2011-12-14T08:19:00.000-05:00

OTTAWA (Reuters) - The finances of Canada's federal government and its 10 provinces are unsustainable over the long term and they will need to either raise taxes or cut spending, in part because the population is aging, the country's budget watchdog said on Thursday.

"Fiscal sustainability requires that government debt cannot ultimately grow faster than the economy," Kevin Page, the parliamentary budget officer, said in a report that looked at likely trends over the next 75 years.

Page's team projected government debt relative to the size of the economy over the long term in the light of current spending and taxes as well as projected demographic and economic trends.

"(Our) debt-to-GDP projection indicates that the current federal and provincial-territorial fiscal structure is not sustainable over the long term," he wrote.

"Addressing this fiscal gap and restoring sustainability to public finances would require permanent policy actions of 2.7 percent of gross domestic product, either to raise taxes, reduce overall program spending, or some combination of both."

Page said slower labor force growth caused by an aging population would reduce annual average real gross domestic product growth from the 2.6 percent observed over the 1977-2010 period to 1.8 percent over the 2011-2086 period.

David Ljunggren
Reuters
29 Sep, 2011

CONRAD BLACK: IN PRAISE OF THE ALPHA FEMALE

2011-12-05T05:40:00.001-05:00

It is surely time to recognize what an immense improvement has been wrought in world standards of governance by the rise of female national leaders.

Golda Meir and Indira Gandhi were effectively the pioneers, among democratically elected leaders, though the genius of a considerable number of previous empresses and queens gave a foretaste of what the world was denying itself in excluding women from its highest public offices (and most other important positions). Queen Elizabeth I was the greatest British monarch; Victoria was certainly competent, and although such comparisons are odious, the present queen surely has better judgment than have most of the 12 British and 11 Canadian prime ministers who have served her.

Meir was a strong Israeli foreign minister and a tough prime minister, who though somewhat taken by surprise in the Yom Kippur war in 1973, made Israel a nuclear power and governed intelligently in the socialistic tradition. Indira Gandhi, after a brief interregnum following the death of her father, Jawaharlal Nehru, inherited the leadership of her country. She, too, continued the socialistic policies of her father and (unfortunately) the insufferably pretentious practice of sitting in the rose garden of the prime minister’s residence in New Delhi, fondling a flower and explaining that India was the moral arbiter of the world because of its secular spirituality and ethical exaltedness, despite its poverty, indulged primitiveness, hypocrisy and corruption.

She sliced Pakistan in two in 1971, created Bangladesh (greeted on the day of its founding by Henry Kissinger as “a basket case, but not our basket case”); promoted India’s nuclear program, but suffered temporary electoral defeat over her imposition of mandatory sterilization to combat rampant population growth (impossible in even a quasi-democracy). South Asia was a rough-and-tumble political environment, as Indira was assassinated, as were her protegé Mujibar Rahmin, the George Washington of Bangladesh; Indira’s son Rajiv, who succeeded her; and the next leaders of Pakistan — Zulfiqar Ali Bhutto, General Zia ul-Haq, and Bhutto’s daughter Benazir. Indira Gandhi’s and Benazir Bhutto’s perseverance in such an environment was remarkable, and their heirs rule their countries yet.

The real breakthrough in leadership by women in sophisticated democracies came with Margaret Thatcher in the United Kingdom. She had been education secretary in the government of Edward Heath (1970-4), who essentially continued what was called “Butskillism” (after Conservative deputy leader Rab Butler and 1950s-era Labour Party leader Hugh Gaitskell), whereby there were only marginal social policy differences between the two main parties, whatever rhetorical excesses they engaged in at each others’ expense at election time.

Thatcher opposed Heath at the party convention of 1975, when senior alternatives declined to bell the cat. She was elected leader of the opposition, slogged through four years in that role, and only narrowly won the 1979 general election over James Callaghan, although Britain was being closely monitored by the IMF; sluggish economic growth and a labour movement that shut down anything on a whim of local officials and was completely out of control. The metropolitan London garbage collectors and even the undertakers were on strike in the winter of early 1979, while London suffered extensive electricity brown-outs two and three days a week because of union industrial action. Despite the lamentable state of the country, Thatcher’s victory was narrow because of her radical program and, it is conjectured, because she was the country’s first major-party female leader. When she was elected leader, and went to the Conservative Party’s informal social headquarters, the Carlton Club, she was told that ladies were not allowed, other than as guests. “They are now,” she famously said as she sailed majestically past the concierge.

Margaret Thatcher cut personal income tax rates to 40%, required secret ballots for strike authorizations, reoriented the British work force to more modern industries by reducing or ending subsidies and massive privatization (including virtually giving public housing to its occupants), generated exhilarating economic growth, and expelled the Argentineans from the Falkland Islands, which they had illegally seized. (This produced the ancillary benefit of toppling the military junta in that country, and relaunching Argentinean democracy, which has recently re-elected a female president.)

She became the first prime minister in British history since the radical expansion of the franchise in the First Reform Act of 1832 to win three consecutive full terms. (Tony Blair has replicated the feat, but his party, unlike Thatcher’s, was defeated at the next election.) She is generally reckoned to be surpassed only by Winston Churchill as the greatest British prime minister of the 20th century. (Disclosure: she was my sponsor as a member of the House of Lords, and proposed a toast to Barbara and me at our wedding dinner, and I have been a vociferous supporter of hers since I arrived commercially in the U.K. 25 years ago.)

Now the world is festooned with prominent women heads of government and public leaders. Angela Merkel, the seventh federal German chancellor, is the East German daughter of a Protestant clergyman; she has none of the glamour of Indira Gandhi and not much of the panache of Margaret Thatcher, but is an effective leader at a time when Germany is benignly returning to the role it held under Bismarck as Europe’s most important power. France held that honour in the ’20s and ’90s and the Soviet Union did from 1945 until its dissolution.

Chancellor Merkel is rightly refusing to follow the American example of having the European Central bank (largely in fact a German bank in terms of the backing of its reserves) buy the Eurobonds of distressed countries or approve the issuance of Eurobonds whose proceeds would be funnelled to the needs of those countries. The fallout will be severe, but Germany will protect the integrity of the euro and enjoy the irony of many neighbouring countries who in living memory have fought the oppression and overlordship of Germany with desperate bravery, beseeching German economic suzerainty. (The welcome possibility has recently emerged that Merkel might approve such bond issues in the event of sovereign default and imposed programs of market liberalization and not just self-amplifying Scroogian austerity.)

Turning back to India, Sonia Gandhi, Indira Gandhi’s daughter-in-law, an Italian and a Roman Catholic, has guided the Congress Party from the socialistic economic wasteland of its founders and their early continuators, to a policy of deregulation, incentivization of economic growth, and the systematic reduction of poverty and growth of the middle class that has made Indian economic progress roughly parallel to China’s (though many corrupt government practices remain). It has achieved this while retaining a plausible democracy such as has never existed in China (other than in Taiwan in recent decades). She had the wisdom not to accept the proffered leadership of Congress, but to be party chairman, and is preparing to deliver the leadership, for the fourth consecutive generation, to her son. Sonia Gandhi is one of the world’s greatest and most under-recognized political strategists, in one of the world’s most important countries.

The Burmese democratic leader, Aung San Suu Kyi has been well-lionized in the West and awarded the Nobel Peace Prize, but few could appreciate the courage required to lead resistance through four years of imprisonment and approximately a decade of house arrest at the hands of one of the most obtusely despotic regimes in the world. She, aided by the greed and overbearing presumption of the Chinese, has brought the Burmese leaders to a stage of partial democratization, in order to facilitate a resumption of functioning relations with the West. This could be a democratic victory as important as, and comparably heroic to, that of Nelson Mandela, by a thoroughly westernized, very brave woman in an insular hermit country.

Thailand’s prime minister, Yingluck Shinawatra, is standing in for her brother, who made a huge fortune in computer software and cracked the national political monopoly of the generals, courtiers, and Bangkok rich by founding a rural-based people’s party (“Thais Loving Thais”), took office, began to liberalize (while abolishing capital gains taxes and selling his business at a huge profit), until he was sent packing by the military. Thailand has been laid low by floods, and the Prime Minister, wading through knee-deep water (in exiguous shorts), is fighting for her family’s position. She bears watching.

Finally, the Ukraine’s Julia Timoshenko is a beautiful woman and a fiery orator whose political and financial ethics are not above suspicion. She is now a political prisoner, on trumped-up charges, having narrowly lost the last presidential election. She has attracted the solicitude of Europe and much of the world, and claims to be suffering from a mysterious illness (so mysterious it has no known or identifiable symptoms, as she exhibits none). She is a Slavic Evita, with a non-political husband, and she will be back.

In light of all this, it is worth reflecting, generally, on what the world was missing, with a 50%-restricted talent pool, in competition for high public office, prior to about 1965. And one welcomes the day when a similar transformation occurs in those parts of the world — the Arab Middle East and sub-Saharan Africa, in particular — that so far have suppressed their own Ghandis, Thatchers, Meirs and Timoshenkos.

Conrad Black

National Post
Dec 3, 2011

ARE YOU READY FOR THE ERA OF "BIG DATA"?

2011-12-04T23:40:00.001-05:00

Radical customization, constant experimentation, and novel business models will be new hallmarks of competition as companies capture and analyze huge volumes of data. Here’s what you should know.

The top marketing executive at a sizable US retailer recently found herself perplexed by the sales reports she was getting. A major competitor was steadily gaining market share across a range of profitable segments. Despite a counterpunch that combined online promotions with merchandizing improvements, her company kept losing ground.

When the executive convened a group of senior leaders to dig into the competitor’s practices, they found that the challenge ran deeper than they had imagined. The competitor had made massive investments in its ability to collect, integrate, and analyze data from each store and every sales unit and had used this ability to run myriad real-world experiments. At the same time, it had linked this information to suppliers’ databases, making it possible to adjust prices in real time, to reorder hot-selling items automatically, and to shift items from store to store easily. By constantly testing, bundling, synthesizing, and making information instantly available across the organization—from the store floor to the CFO’s office—the rival company had become a different, far nimbler type of business.

What this executive team had witnessed first hand was the game-changing effects of big data. Of course, data characterized the information age from the start. It underpins processes that manage employees; it helps to track purchases and sales; and it offers clues about how customers will behave.

But over the last few years, the volume of data has exploded. In 15 of the US economy’s 17 sectors, companies with more than 1,000 employees store, on average, over 235 terabytes of data—more data than is contained in the US Library of Congress. Reams of data still flow from financial transactions and customer interactions but also cascade in at unparalleled rates from new devices and multiple points along the value chain. Just think about what could be happening at your own company right now: sensors embedded in process machinery may be collecting operations data, while marketers scan social media or use location data from smartphones to understand teens’ buying quirks. Data exchanges may be networking your supply chain partners, and employees could be swapping best practices on corporate wikis.

All of this new information is laden with implications for leaders and their enterprises.1 Emerging academic research suggests that companies that use data and business analytics to guide decision making are more productive and experience higher returns on equity than competitors that don’t.2 That’s consistent with research we’ve conducted showing that “networked organizations” can gain an edge by opening information conduits internally and by engaging customers and suppliers strategically through Web-based exchanges of information.3

Over time, we believe big data may well become a new type of corporate asset that will cut across business units and function much as a powerful brand does, representing a key basis for competition. If that’s right, companies need to start thinking in earnest about whether they are organized to exploit big data’s potential and to manage the threats it can pose. Success will demand not only new skills but also new perspectives on how the era of big data could evolve—the widening circle of management practices it may affect and the foundation it represents for new, potentially disruptive business models.

Five big questions about big data

In the remainder of this article, we outline important ways big data could change competition: by transforming processes, altering corporate ecosystems, and facilitating innovation. We’ve organized the discussion around five questions we think all senior executives should be asking themselves today.

At the outset, we’ll acknowledge that these are still early days for big data, which is evolving as a business concept in tandem with the underlying technologies. Nonetheless, we can identify big data’s key elements. First, companies can now collect data across business units and, increasingly, even from partners and customers (some of this is truly big, some more granular and complex). Second, a flexible infrastructure can integrate information and scale up effectively to meet the surge. Finally, experiments, algorithms, and analytics can make sense of all this information. We also can identify organizations that are making data a core element of strategy. In the discussion that follows and elsewhere in this issue, we have assembled case studies of early movers in the big data realm (see “Seizing the potential of ‘big data’” and the accompanying sidebar, “AstraZeneca’s ‘big data’ partnership,” on mckinseyquarterly.com.)

Even as big data changes the game for virtually every sector, it also tilts the playing field, favoring some companies and industries, particularly in the early stages of adoption. To understand those dynamics, we examined 20 sectors in the US economy, sized their contributions to GDP, and developed two indexes that estimate each sector’s potential for value creation using big data, as well as the ease of capturing that value.1

As the accompanying sector map shows (exhibit), financial players get the highest marks for value creation opportunities. Many of these companies have invested deeply in IT and have large data pools to exploit. Information industries, not surprisingly, are also in this league. They are data intensive by nature, and they use that data innovatively to compete by adopting sophisticated analytic techniques.

The public sector is the most fertile terrain for change. Governments collect huge amounts of data, transact business with millions of citizens, and, more often than not, suffer from highly variable performance. While potential benefits are large, governments face steep barriers to making use of this trove: few managers are pushed to exploit the data they have, and government departments often keep data in siloes.

Fragmented industry structures complicate the value creation potential of sectors such as health care, manufacturing, and retailing. The average company in them is relatively small and can access only limited amounts of data. Larger players, however, usually swim in bigger pools of data, which they can more readily use to create value.

The US health care sector, for example, is dotted by many small companies and individual physicians’ practices. Large hospital chains, national insurers, and drug manufacturers, by contrast, stand to gain substantially through the pooling and more effective analysis of data. We expect this trend to intensify with changing regulatory and market conditions. In manufacturing, too, larger companies with access to much internal and market data will be able to mine new reservoirs of value. Smaller players are likely to benefit only if they discover innovative ways to share data or grow through industry consolidation. The same goes for retailing, where—despite a healthy strata of data-rich chains and big-box stores on the cutting edge of big data—most players are smaller, local businesses with a limited ability to gather and analyze information.

A final note: this analysis is a snapshot in time for one large country. As companies and organizations sharpen their data skills, even low-ranking sectors (by our gauges of value potential and data capture), such as construction and education, could see their fortunes change.

Notes

The big data value potential index takes into account a sector’s competitive conditions, such as market turbulence and performance variability; structural factors, such as transaction intensity and the number of potential customers and business partners; and the quantity of data available. The ease-of-capture index takes stock of the number of employees with deep analytical talent in an industry, baseline investments in IT, the accessibility of data sources, and the degree to which managers make data-driven decisions.

In addition, we’d suggest that executives look to history for clues about what’s coming next. Earlier waves of technology adoption, for example, show that productivity surges not only because companies adopt new technologies but also, more critically, because they can adapt their management practices and change their organizations to maximize the potential. We examined the possible impact of big data across a number of industries and found that while it will be important in every sector and function, some industries will realize benefits sooner because they are more ready to capitalize on data or have strong market incentives to do so (see sidebar, “Parsing the benefits: Not all industries are created equal”).

The era of big data also could yield new management principles. In the early days of professionalized corporate management, leaders discovered that minimum efficient scale was a key determinant of competitive success. Likewise, future competitive benefits may accrue to companies that can not only capture more and better data but also use that data effectively at scale. We hope that by reflecting on such issues and the five questions that follow, executives will be better able to recognize how big data could upend assumptions behind their strategies, as well as the speed and scope of the change that’s now under way.

1. What happens in a world of radical transparency, with data widely available?

As information becomes more readily accessible across sectors, it can threaten companies that have relied on proprietary data as a competitive asset. The real-estate industry, for example, trades on information asymmetries such as privileged access to transaction data and tightly held knowledge of the bid and ask behavior of buyers. Both require significant expense and effort to acquire. In recent years, however, online specialists in real-estate data and analytics have started to bypass agents, permitting buyers and sellers to exchange perspectives on the value of properties and creating parallel sources for real-estate data.

Beyond real estate, cost and pricing data are becoming more accessible across a spectrum of industries. Another swipe at proprietary information is the assembly by some companies of readily available satellite imagery that, when processed and analyzed, contains clues about competitors’ physical facilities. These satellite sleuths glean insights into expansion plans or business constraints as revealed by facility capacity, shipping movements, and the like.

One big challenge is the fact that the mountains of data many companies are amassing often lurk in departmental “silos,” such as R&D, engineering, manufacturing, or service operations—impeding timely exploitation. Information hoarding within business units also can be a problem: many financial institutions, for example, suffer from their own failure to share data among diverse lines of business, such as financial markets, money management, and lending. Often, that prevents these companies from forming a coherent view of individual customers or understanding links among financial markets.

Some manufacturers are attempting to pry open these departmental enclaves: they are integrating data from multiple systems, inviting collaboration among formerly walled-off functional units, and even seeking information from external suppliers and customers to cocreate products. In advanced-manufacturing sectors such as automotive, for example, suppliers from around the world make thousands of components. More integrated data platforms now allow companies and their supply chain partners to collaborate during the design phase—a crucial determinant of final manufacturing costs.

2. If you could test all of your decisions, how would that change the way you compete?

Big data ushers in the possibility of a fundamentally different type of decision making. Using controlled experiments, companies can test hypotheses and analyze results to guide investment decisions and operational changes. In effect, experimentation can help managers distinguish causation from mere correlation, thus reducing the variability of outcomes while improving financial and product performance.

Robust experimentation can take many forms. Leading online companies, for example, are continuous testers. In some cases, they allocate a set portion of their Web page views to conduct experiments that reveal what factors drive higher user engagement or promote sales. Companies selling physical goods also use experiments to aid decisions, but big data can push this approach to a new level. McDonald’s, for example, has equipped some stores with devices that gather operational data as they track customer interactions, traffic in stores, and ordering patterns. Researchers can model the impact of variations in menus, restaurant designs, and training, among other things, on productivity and sales.

Where such controlled experiments aren’t feasible, companies can use “natural” experiments to identify the sources of variability in performance. One government organization, for instance, collected data on multiple groups of employees doing similar work at different sites. Simply making the data available spurred lagging workers to improve their performance.

Leading retailers, meanwhile, are monitoring the in-store movements of customers, as well as how they interact with products. These retailers combine such rich data feeds with transaction records and conduct experiments to guide choices about which products to carry, where to place them, and how and when to adjust prices. Methods such as these helped one leading retailer to reduce the number of items it stocked by 17 percent, while raising the mix of higher-margin private-label goods—with no loss of market share.

3. How would your business change if you used big data for widespread, real-time customization?

Customer-facing companies have long used data to segment and target customers. Big data permits a major step beyond what until recently was considered state of the art, by making real-time personalization possible. A next-generation retailer will be able to track the behavior of individual customers from Internet click streams, update their preferences, and model their likely behavior in real time. They will then be able to recognize when customers are nearing a purchase decision and nudge the transaction to completion by bundling preferred products, offered with reward program savings. This real-time targeting, which would also leverage data from the retailer’s multitier membership rewards program, will increase purchases of higher-margin products by its most valuable customers.

Retailing is an obvious place for data-driven customization because the volume and quality of data available from Internet purchases, social-network conversations, and, more recently, location-specific smartphone interactions have mushroomed. But other sectors, too, can benefit from new applications of data, along with the growing sophistication of analytical tools for dividing customers into more revealing microsegments.

One personal-line insurer, for example, tailors insurance policies for each customer, using fine-grained, constantly updated profiles of customer risk, changes in wealth, home asset value, and other data inputs. Utilities that harvest and analyze data on customer segments can markedly change patterns of power usage. Finally, HR departments that more finely segment employees by task and performance are beginning to change work conditions and implement incentives that improve both satisfaction and productivity.4

4. How can big data augment or even replace management?

Big data expands the operational space for algorithms and machine-mediated analysis. At some manufacturers, for example, algorithms analyze sensor data from production lines, creating self-regulating processes that cut waste, avoid costly (and sometimes dangerous) human interventions, and ultimately lift output. In advanced, “digital” oil fields, instruments constantly read data on wellhead conditions, pipelines, and mechanical systems. That information is analyzed by clusters of computers, which feed their results to real-time operations centers that adjust oil flows to optimize production and minimize downtimes. One major oil company has cut operating and staffing costs by 10 to 25 percent while increasing production by 5 percent.

Products ranging from copiers to jet engines can now generate data streams that track their usage. Manufacturers can analyze the incoming data and, in some cases, automatically remedy software glitches or dispatch service representatives for repairs. Some enterprise computer hardware vendors are gathering and analyzing such data to schedule preemptive repairs before failures disrupt customers’ operations. The data can also be used to implement product changes that prevent future problems or to provide customer use inputs that inform next-generation offerings.

Some retailers are also at the forefront of using automated big data analysis: they use “sentiment analysis” techniques to mine the huge streams of data now generated by consumers using various types of social media, gauge responses to new marketing campaigns in real time, and adjust strategies accordingly. Sometimes these methods cut weeks from the normal feedback and modification cycle.

But retailers aren’t alone. One global beverage company integrates daily weather forecast data from an outside partner into its demand and inventory-planning processes. By analyzing three data points—temperatures, rainfall levels, and the number of hours of sunshine on a given day—the company cut its inventory levels while improving its forecasting accuracy by about 5 percent in a key European market.

The bottom line is improved performance, better risk management, and the ability to unearth insights that would otherwise remain hidden. As the price of sensors, communications devices, and analytic software continues to fall, more and more companies will be joining this managerial revolution.

5. Could you create a new business model based on data?

Big data is spawning new categories of companies that embrace information-driven business models. Many of these businesses play intermediary roles in value chains where they find themselves generating valuable “exhaust data” produced by business transactions. One transport company, for example, recognized that in the course of doing business, it was collecting vast amounts of information on global product shipments. Sensing opportunity, it created a unit that sells the data to supplement business and economic forecasts.

Another global company learned so much from analyzing its own data as part of a manufacturing turnaround that it decided to create a business to do similar work for other firms. Now the company aggregates shop floor and supply chain data for a number of manufacturing customers and sells software tools to improve their performance. This service business now outperforms the company’s manufacturing one.

Big data also is turbocharging the ranks of data aggregators, which combine and analyze information from multiple sources to generate insights for clients. In health care, for example, a number of new entrants are integrating clinical, payment, public-health, and behavioral data to develop more robust illness profiles that help clients manage costs and improve treatments.

And with pricing data proliferating on the Web and elsewhere, entrepreneurs are offering price comparison services that automatically compile information across millions of products. Such comparisons can be a disruptive force from a retailer’s perspective but have created substantial value for consumers. Studies show that those who use the services save an average of 10 percent—a sizable shift in value.

Confronting complications

Up to this point, we have emphasized the strategic opportunities big data presents, but leaders must also consider a set of complications. Talent is one of them. In the United States alone, our research shows, the demand for people with the deep analytical skills in big data (including machine learning and advanced statistical analysis) could outstrip current projections of supply by 50 to 60 percent. By 2018, as many as 140,000 to 190,000 additional specialists may be required. Also needed: an additional 1.5 million managers and analysts with a sharp understanding of how big data can be applied. Companies must step up their recruitment and retention programs, while making substantial investments in the education and training of key data personnel.

The greater access to personal information that big data often demands will place a spotlight on another tension, between privacy and convenience. Our research, for example, shows that consumers capture a large part of the economic surplus that big data generates: lower prices, a better alignment of products with consumer needs, and lifestyle improvements that range from better health to more fluid social interactions.5 As a larger amount of data on the buying preferences, health, and finances of individuals is collected, however, privacy concerns will grow.

That’s true for data security as well. The trends we’ve described often go hand in hand with more open access to information, new devices for gathering it, and cloud computing to support big data’s weighty storage and analytical needs. The implication is that IT architectures will become more integrated and outward facing and will pose greater risks to data security and intellectual property. For some ideas on how leaders should respond, see “Meeting the cybersecurity challenge.”

Although corporate leaders will focus most of their attention on big data’s implications for their own organizations, the mosaic of company-level opportunities we have surveyed also has broader economic implications. In health care, government services, retailing, and manufacturing, our research suggests, big data could improve productivity by 0.5 to 1 percent annually. In these sectors globally, it could produce hundreds of billions of dollars and euros in new value.

In fact, big data may ultimately be a key factor in how nations, not just companies, compete and prosper. Certainly, these techniques offer glimmers of hope to a global economy struggling to find a path toward more rapid growth. Through investments and forward-looking policies, company leaders and their counterparts in government can capitalize on big data instead of being blindsided by it.

Source: McKinsey Global Institute October 2011

Brad Brown, Michael Chui, and James Manyika

About the Authors

Brad Brown is a director in McKinsey’s New York Office; Michael Chui is a senior fellow with the McKinsey Global Institute (MGI) and is based in the San Francisco office; James Manyika is a director of MGI and a director

CORPORATE GREED: ONE (VERY CAPABLE) AUTO CEO's VIEW

2011-11-23T14:48:00.003-05:00

Chrysler CEO, Sergio Marchionne, slams income disparity

Sergio Marchionne, chief executive of Chrysler Group LLC and Fiat SpA, told business leaders Tuesday they have a "moral responsibility" to address the growing income disparity between the rich and poor that is at the heart of the current Occupy Wall Street movement by curtailing excessive executive compensation and corporate greed.

At the same time, he said he would be seeking concessions in 2012 from his own workers during Chrysler's coming round oflabour negotiations with the Canadian Auto Workers.

While Mr. Marchionne acknowledged the Occupy Wall Street movement itself was at times incoherent, its central tenants of addressing the wealth gap and corporate greed need to be addressed, something he has witnessed himself at a board level over the years.

"I have seen an incredible amount of corporate greed sitting on these boards," he said after a speech at the Canadian Institute of Chartered Accountants in Toronto. "Things that I never thought were possible. I have seen the most inane displays of greed for the last 10 years, and I think that must stop."

"If it doesn't stop, the movement will continue. It will continue to get stronger."

Mr. Marchionne said he didn't believe this needed to be addressed by government intervention, but rather at the board level. In fact, he said U.S. President Barack Obama's support of the Occupy movement was "somewhat unhelpful:'

"As much as you may agree with the ideological level, you cannot agree with the form of the protest. Not if you're the president of the United States," the high profile Italian-Canadian executive said.

That is why he encouraged business leaders to address the "root" of the issue at the board level or risk having legislation forced upon them.

"One of the things that also has to be looked at is the whole issue of executive compensation:' he said. "It's very, very difficult to have discussions with organized labour about pay packages when you have fundamental inequalities in the system."

Despite Mr. Marchionne eloquently quoting Pierre Trudeau, Leo Tolstoy and Nelson Mandela in his speech in Toronto, he is hardly the everyman himself. He made roughly €3.47-million [$4.9-million] as the head of Fiat SpA, Fiat Industrial and Chrysler in 2010.

At the same time, Mr. Marchionne said he would be looking for concessions from the CAW in their upcoming round of labour negotiations in 2012. He has also been on the record saying he does not support the two tier wage system adopted by Chrysler workers in the U.S., and would like to see a single wage that is lower than the top tier.

"I don't like the notion of entitlement either:' he said. "If we're all in the same boat, then if I'm doing well I will pay you much more than you would have gotten as a tier one. But if we're in the sewers, don't expect your role preserved when everyone else is drowning:'

He said that might come in the form of incentives, or profit sharing. But he said the Canadian workers would have to be at least as competitive as their counterparts south of the border if they wanted to continue to win new work, especially now that the dollar is not providing a buffer for manufacturers here.

While he thanked the Canadian and Ontario governments for the $2.9-billion bailout package they gave Chrysler in 2009 during its restructuring, he said Chrysler would be making product decisions based on economics going forward and that Canadian operations needed to be as competitive as the U.S. operations, where wages are substantially lower, to win work. "You cannot have all things. You cannot have a strong currency, cannot have an uncompetitive wage rate and expect Chrysler or all the other car makers to keep on making cars in the country," he said.

But Ken Lewenza, CAW president, said Mr. Marchionne had better get "concessions" out of his vocabulary heading into the negotiations next year.

''When he makes those kind of comments, then I have to obviously educate him on the productivity of our workforce, and the quality of our workforce, because when it comes to compensation, there is a correlation between good productivity and our compensation:' he said. "I was always told by the Chrysler management team that as long as you're productive, wages aren't on the radar screen."

Scott Deveau
Financial Post
Nov. 23, 2011

CHARACTER AND PURPOSE - IN LIFE AND IN DEATH: STEVE JOBS

2011-11-02T10:19:00.000-04:00

A Sister’s Eulogy for Steve Jobs

Then, Steve became ill and we watched his life compress into a smaller circle. Once, he’d loved walking through Paris. He’d discovered a small handmade soba shop in Kyoto. He downhill skied gracefully. He cross-country skied clumsily. No more.

Eventually, even ordinary pleasures, like a good peach, no longer appealed to him.

Yet, what amazed me, and what I learned from his illness, was how much was still left after so much had been taken away.

I remember my brother learning to walk again, with a chair. After his liver transplant, once a day he would get up on legs that seemed too thin to bear him, arms pitched to the chair back. He’d push that chair down the Memphis hospital corridor towards the nursing station and then he’d sit down on the chair, rest, turn around and walk back again. He counted his steps and, each day, pressed a little farther.

Laurene got down on her knees and looked into his eyes.

“You can do this, Steve,” she said. His eyes widened. His lips pressed into each other.

He tried. He always, always tried, and always with love at the core of that effort. He was an intensely emotional man.

I realized during that terrifying time that Steve was not enduring the pain for himself. He set destinations: his son Reed’s graduation from high school, his daughter Erin’s trip to Kyoto, the launching of a boat he was building on which he planned to take his family around the world and where he hoped he and Laurene would someday retire.

Even ill, his taste, his discrimination and his judgment held. He went through 67 nurses before finding kindred spirits and then he completely trusted the three who stayed with him to the end. Tracy. Arturo. Elham.

One time when Steve had contracted a tenacious pneumonia his doctor forbid everything — even ice. We were in a standard I.C.U. unit. Steve, who generally disliked cutting in line or dropping his own name, confessed that this once, he’d like to be treated a little specially.

I told him: Steve, this is special treatment.

He leaned over to me, and said: “I want it to be a little more special.”

Intubated, when he couldn’t talk, he asked for a notepad. He sketched devices to hold an iPad in a hospital bed. He designed new fluid monitors and x-ray equipment. He redrew that not-quite-special-enough hospital unit. And every time his wife walked into the room, I watched his smile remake itself on his face.

For the really big, big things, you have to trust me, he wrote on his sketchpad. He looked up. You have to.

By that, he meant that we should disobey the doctors and give him a piece of ice.

None of us knows for certain how long we’ll be here. On Steve’s better days, even in the last year, he embarked upon projects and elicited promises from his friends at Apple to finish them. Some boat builders in the Netherlands have a gorgeous stainless steel hull ready to be covered with the finishing wood. His three daughters remain unmarried, his two youngest still girls, and he’d wanted to walk them down the aisle as he’d walked me the day of my wedding.

We all — in the end — die in medias res. In the middle of a story. Of many stories.

I suppose it’s not quite accurate to call the death of someone who lived with cancer for years unexpected, but Steve’s death was unexpected for us.

What I learned from my brother’s death was that character is essential: What he was, was how he died.

Tuesday morning, he called me to ask me to hurry up to Palo Alto. His tone was affectionate, dear, loving, but like someone whose luggage was already strapped onto the vehicle, who was already on the beginning of his journey, even as he was sorry, truly deeply sorry, to be leaving us.

He started his farewell and I stopped him. I said, “Wait. I’m coming. I’m in a taxi to the airport. I’ll be there.”

“I’m telling you now because I’m afraid you won’t make it on time, honey.”

When I arrived, he and his Laurene were joking together like partners who’d lived and worked together every day of their lives. He looked into his children’s eyes as if he couldn’t unlock his gaze.

Until about 2 in the afternoon, his wife could rouse him, to talk to his friends from Apple.

Then, after awhile, it was clear that he would no longer wake to us.

His breathing changed. It became severe, deliberate, purposeful. I could feel him counting his steps again, pushing farther than before.

This is what I learned: he was working at this, too. Death didn’t happen to Steve, he achieved it.

He told me, when he was saying goodbye and telling me he was sorry, so sorry we wouldn’t be able to be old together as we’d always planned, that he was going to a better place.

Dr. Fischer gave him a 50/50 chance of making it through the night.

He made it through the night, Laurene next to him on the bed sometimes jerked up when there was a longer pause between his breaths. She and I looked at each other, then he would heave a deep breath and begin again.

This had to be done. Even now, he had a stern, still handsome profile, the profile of an absolutist, a romantic. His breath indicated an arduous journey, some steep path, altitude.

He seemed to be climbing.

But with that will, that work ethic, that strength, there was also sweet Steve’s capacity for wonderment, the artist’s belief in the ideal, the still more beautiful later.

Steve’s final words, hours earlier, were monosyllables, repeated three times.

Before embarking, he’d looked at his sister Patty, then for a long time at his children, then at his life’s partner, Laurene, and then over their shoulders past them.

Steve’s final words were:

OH WOW. OH WOW. OH WOW.

Mona Simpson is a novelist and a professor of English at the University of
California, Los Angeles. She delivered this eulogy for her brother, Steve Jobs,
on Oct. 16 at his memorial service at the Memorial Church of Stanford University.
October 30, 2011

ROBERT FULFORD: AMERICA HAS SMALL LEADERS TRYING TO DEAL WITH BIG PROBLEMS

2011-10-09T06:17:00.000-04:00

As a lifelong admirer of American culture and institutions, I find it painful to follow the 2012 political cycle. What malign convergence of forces has left the Republican Party with the pathetic array of would-be leaders now seeking the presidential nomination? Lined up in a row of seven or eight on a stage in somewhere like Ames, Iowa, or Orlando, Florida, they make an appalling spectacle — though they are not the worst problem facing America at this moment.

These hopefuls are a solemn, unimaginative lot. They apparently have little on their minds but themselves, their enemy in the White House and their hope of tricking one of their competitors into making an embarrassing gaffe or confession.

Two leading candidates, Governor Rick Perry of Texas and House Representative Michele Bachmann of Minnesota, both express wildly optimistic ideas about what they could do in White House. They’ll cut taxes, cut the public sector and have the country prospering in no time.

Perry and Bachmann, proud Christians, have followers belonging to cults that might generously be described as eccentric. For instance, C. Peter Wagner, a Colorado evangelist who took part in Perry’s prayer meeting (“for a Nation in Crisis”) at Reliant Stadium in Houston, advocates Christian control of government; he also wants to burn the statues of Catholic saints. Perry doesn’t necessarily agree with people like Wagner but he says he’s glad to have their support and he certainly won’t say a word against them.

Mitt Romney, who is now sometimes mentioned as the inevitable nominee, lost the nomination to John McCain in 2008 and has been running this time for a year. But after all that strenuous effort he’s not impressed most of his fellow Republicans. About a fifth of them support him, the same proportion he had on his side a year ago.

He’s bland, almost as if determined to be ordinary. He remains widely unloved. A Washington Post story expressed this in extreme understatement: He “has stirred only limited passion.” Anyone with a TV set knows why. He’s smug and priggish, annoyingly condescending. He knows he’s the smartest man in the room and finds it impossible to keep that opinion to himself.

Reluctantly, the Republicans seem to be accepting him, as their not-too-bad candidate. David Brooks, whose New York Times column often projects a lively and original view of the future, considers Romney the man for the moment. He’s a technocratic manager, an effective executive, an Organization Man. He’s sophisticated enough to work the system and put through the policies the current crisis calls for.

It’s sad t see Brooks settling, 13 months before the election, for the minimum candidate. Apparently he believes the U.S. has had enough excitement and too many failures. He’ll be satisfied with a politician who can deliver what Canadians traditionally expect, what the British North America Act calls “Peace, order and good government.”

Most Republicans expect they can beat Barack Obama and he’s done little to demonstrate that they are wrong. Even among Democrats, only 58% think Obama will be re-elected. About six out of 10 Americans disapprove of the way he’s handling the economy and seven out of 10 say the country is on the wrong track.

Confidence Men, Ron Suskind’s recent book about economic arguments in the White House, depicts Obama as a novice manager unable to deal with serious trouble. Suskind quotes Lawrence Summers, the senior economic advisor: “We’re home alone. There’s no adult in charge.” He’s denied he said it but those words not only sound like Summers, they sound like the truth. The Democrats are led by a man who knows little about management and apparently has no interest in learning.

Still, political leadership isn’t America’s core problem. The paralysis now afflicting the U.S. is the result of many Americans believing that they can spend more money they have and defer repayment indefinitely — a governing principle that operates as much in government as in private households.

Most of the West (including Canada) makes the same mistake, sometimes with dire consequences. But in America everything happens on a grander scale, with gargantuan results. And any serious failure affects much of the world.

The American fiscal tragedy is American made, the result of chronic long-term thoughtlessness. Do the Americans know this yet? Apparently not. Leaders brave enough to break the news to them might be able to lead the country toward better days but no such leaders are on the horizon. A close study of those now offering themselves provides, in this melancholy year, no clear basis for hope.

Robert Fulford
National Post
Oct 8, 2011

THERE'S NOTHING ROMANTIC ABOUT MONEY: MAKE SURE YOU ARE FINANCIALLY ALIGNED

2011-10-08T15:41:00.001-04:00

Failing in love and getting married is arguably one of the most exciting times of your life. The dating years seem to prepare us well for selecting a mate. By the time you find the person of your dreams, you've likely gone through enough heartbreak and mistakes to know who your ideal emotional companion is. But the cold, hard - often unspoken - truth is that in a marriage, emotional compatibility is only half the equation. Anyone who's been married for any length of time knows this all too well: financial compatibility is just as important, maybe more so. Love does not conquer all, and financial misalignment can destroy a union.

The bottom line really is that you need to ensure you're financially aligned before you get married. This means full financial disclosure on both sides and honest conversations about your life goals and how you're going to get there - together. It's that simple, but it's hard for people to do. As open as we've become as a society - just think about how much we're willing to share on Facebook and Twitter - we are simply not comfortable talking about our finances, not even with the single most important person in our lives. It's shocking. But consider this: If you do bite the bullet and have those tough conversations, hash it out, come to a consensus, map out a life plan and stick to it, then, wow, do you ever have something to be excited about.

So, where should new couples start to figure it out?

First, by coming clean on their personal balance sheets - what they own and what they owe, including student loans and all credit card debt. This doesn't mean you suddenly need all of your money in joint accounts; however full disclosure at the outset and throughout the relationship is critical. Cash flow is another conversation - is your soulmate spending more than he earns, what is he spending it on? If you are planning a wedding and discover that you're both in debt, does it really make sense to buy a big engagement ring, throw an elaborate celebration and sink further into debt? The answer may be a smaller, more low-key celebration, or fewer guests. According to Weddingbells' Annual Reader Survey the average expected cost of a wedding in 2011 was $23,330. That's a lot of money that can be put towards building your future or paying down debt.

Another option some people consider is living together before marriage - and holding off on the wedding until you are in better financial shape. While I recognize that it's not an option for some people given their personal beliefs, I think it's a relatively low-risk way to really determine if you and your partner are financially aligned. Living together, whether married or not, puts theory into practice and makes you fully accountable to your partner. And, it may uncover fundamental differences. I would argue that you're better off knowing that ahead of time than finding out when you're already married.

Whether you choose to live together or get married, once you've come clean on your financial situation, it's time to talk about the future. What are your life goals? Do you want one kid, two kids, no kids? Do you want to vacation every year? Where do you want to live? The answers to those questions come with a budget number attached. And you need to make sure that you're grounded in reality when you're budget planning and setting goals. You may even want to consider a marriage contract. Michael Cochrane, a prominent family lawyer, is an advocate of marriage contracts as a way to provide clarity and focus.

"A marriage contract at the outset of a marriage or even to restore financial balance after one spouse has had problems can be a tool for strengthening a marriage by creating a clear realignment of the partners' goals"

It's tough. There's nothing romantic about money.

It's not why you fell in love and wanted to get married. But getting it right can help ensure you stay married, and happily so.

Patricia Lovett - Reid
Financial Post
October 8, 2011

Patricia Lovett-Reid, senior vice-president, TD Waterhouse, is one of Canada's leading and respected authorities on personal finance

OSC CONSIDERING FIDUCIARY DUTY FOR DEALERS AND ADVISORS: A MOVE TOWARD A UNIFORM PLATFORM FOR PROFESSIONAL PRACTICE IN FINANCIAL SERVICES

2011-09-26T17:15:00.005-04:00

Discussion paper will summarize the fiduciary duty debate at home and abroad and identify the key issues involved

The Ontario Securities Commission will publish a discussion paper examining whether to impose a fiduciary duty of dealers and advisors later this fall, the regulator said Monday.

In a staff notice detailing the work of the OSC’s compliance branch over the past year, the commission indicates that it is “considering whether an explicit legislative fiduciary duty standard should apply to dealers and advisers in Ontario”.

The OSC promised earlier this year, in its statement of priorities, that it would study the issue. That pledge came in response to calls from investor advocates, including the Canadian Foundation for Advancement of Investor Rights and the OSC’s Investor Advisory Panel, to look at whether advisors should be required to act in their clients’ best interests (a more stringent standard than the suitability standard that currently applies).

In the branch report, the OSC says that it intends to publish a discussion paper on fiduciary duty in the fall of 2011 “that will summarize the fiduciary duty debate (both domestically and internationally) and identify the key issues involved.”

It notes that it has been monitoring the fiduciary duty debate in Canada and internationally, and recent rule developments in the United States, Australia and the UK related to fiduciary duty.

“Recently, there have been important international developments on the issue of fiduciary duty,” it says, noting that the U.S. Securities and Exchange Commission is expected to introduce rules in 2012 that would create a common statutory fiduciary duty for investment advisors and broker-dealers when they are providing personalized advice to retail clients. In Australia, the government is also expected to introduce legislation in 2012 that will make advisors subject to a fiduciary duty when dealing with retail clients.

James Langton

Investment Executive
September 26, 2011

SHOULD WE RAISE TAXES ON THE RICH?

2011-09-10T12:22:00.004-04:00

Not since the Gilded Age plutocracy of a century ago has there been such a near consensus as there is today in North America on the need to raise taxes on the rich.

Warren Buffett was pushing on an open door with his heavily Tweeted recent op-ed in The New York Times Calling for higher taxes on himself and fellow billionaires.

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks;' wrote the controlling shareholder in scores of iconic American firms ranging from Dairy Queen to the Burlington Northern Santa Fe railroad.

"My friends and I have been coddled long enough by a billionaire-friendly Congress;' wrote Buffett, whose tax rate last year was just 17 per cent, compared with an average of 36 per cent for his colleagues at Berkshire Hathaway Inc.

"It's time for our government to get serious about shared sacrifice:'

Buffett no doubt braced for a backlash from the affluent And Conrad Black, for one, has fretted that Buffett is exhorting lawmakers into a "tokenistic fiscal persecution of the most affluent" - a demographic to which the disgraced former press baron remains loyal, though his membership has lapsed.

But the real story here is the scarcity of objections to Buffett's call for a level playing field, in which all income groups are able to participate fully in society.

Business is in such bad odour that realistically the most it carl ask of others today is what used to be called Christian forbearance. Or to agree with Buffett.

U.S. financier Eli Broad says, ''We've been coddled long enough and have tax breaks that 99.9 per cent of the public don't have, and it's not fair:'

Hedge-fund manager George Soros adds: "The rich are hurting their own long-term interests by their opposition to paying more taxes."

The distemper of these times, as Peter C. Newman labelled the social upheaval of the 1960s, is popular distrust of most institutions, including politics, organized religion, the medical-industrial complex and the news media.

Business perhaps looms largest in the rogues' gallery. This isn't the place to recite its rap sheet Mere mention will do of the job-killing Great Recession triggered by errant tycoonery in global financial centres. Saving the world economy from that explosion of reckless greed has so far cost the U.S. alone about $2 trillion in taxpayer-funded Wall Street bailouts.

Business leaders have to grasp that in recent years free enterprise misconduct has come so fast and ruinous that it's a blur. Tepco's inadequately maintained Fukushima nuclear power plant, BP's Gulf of Mexico oil spill, Massey Energy's mining tragedy in West Virginia, the fiscal villainy of war profiteers Halliburton and Blackwater - these all now seem preordained.

Business CEOs now pay themselves 325 times the compensation of shop-floor and cubicle workers. That ratio was closer to 25- to-1 in the 1960s. One cannot sustain an argument that business CEOs are now 300 times smarter than they were a half century ago, before they began "offshoring" manufacturing jobs or being stupendously rewarded for incompetence.

When they were shown the door at Citigroup Inc., Merrill Lynch Inc. and Countrywide Financial Inc. in the late 2000s, the malfeasant CEOs of those enterprises left with parting gifts of $147 million, $162 million and $145 million respectively.

The scandal besieged Rupert Murdoch has paid himself $33 million for fiscal 2010, a 47 per cent increase. The "pay for performance" canard espoused by its fattened business beneficiaries is honoured far more in the breach than the observance.

Bruce Bartlett, a veteran of the Reagan and George H.W Bush administrations, has compiled 23 polls on deficit-reduction over the past nine months. He found a consistent 2 - to - l support for tax hikes on the wealthy. He calculates that without George W. Bush's tax cuts of 2001 and 2003 skewed to the rich, "federal revenue would have been more than $166 billion higher in 2008 alone" - enough to reduce the deficit by about 10 per cent.

The anti-tax brigade casts all tax hikes as 'Job killers." That is nonsense. In the era before runaway pay for CEOs and higher top marginal tax rates in 1980s and 1990s, the US. economy created nearly 40 million net new jobs. The salient backdrop for the current distemper is a 30-year stagnation in middle-class incomes, while prices for fuel, shelter, tuition and even food have been soaring.

The gap between rich and poor has widened markedly in Canada, where the top 1 per cent of income earners accounts for almost 40 per cent of total national income. That same top 1 per cent collected one - third of growth in national income between 1998 and 2007. In the 1950s and 1960s, that figure was a mere 8 per cent.

Depending on which of the conventional measures of poverty one uses, there are between 3.2 million and 4.4 million Canad.ians living in poverty.

In a Star op-ed last month, Larry Gordon, co-founder of Canadians for Tax Fairness, a group advocating a more progressive tax system, plaintively asked, ''Where's Canada's Warren Buffett?"

Best to ask Ed Clark, CEO of Toronto-Dominion Bank. In February of last year Clark told agathering in Florida that he'd canvassed fellow members of the Canadian Council of Chief Executives, and that almost all had said "raise my taxes" as their contribution to erasing the federal deficit caused by the global credit meltdown.

It took the federal Tories' attack machine just one week to fire off an email to MPs and party supporters accusing Clark of shilling on the Liberals' behalf for "massive new tax hikes on working- and middle-class Canadians."

That was a jaw-dropping slander of both Clark and the Liberals. But it shut up Clark, whose highly regulated firm can't afford to be on the wrong side of the federal government of the day.

The Conference Board usefully calls for a discussion on the efficacy of the 189 tax loopholes in current legislation, and the attractive alternative of a higher basic exemption. The Canadian Centre for Policy Alternatives would add an examination of the deleterious effects of El and welfare programs grown miserly in the past decade, and the impact on income inequality caused by tax policy changes favouring the aftluent.

We can have that discussion peaceably in school auditoriums across the country. Or we can have it in the streets. But there will be a reckoning, because the status quo is untenable.

David Olive
Toronto Star
09 10 2011

STOP CODDLING THE SUPER - RICH: BUFFET

2011-08-15T18:30:00.000-04:00

A classic example of contributing to the Greater Good

BANGALORE (Reuters) - Billionaire Warren Buffett urged U.S. lawmakers to raise taxes on the country's super-rich to help cut the budget deficit, saying such a move will not hurt investments.

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," The 80-year-old "Oracle of Omaha" wrote in an opinion article in The New York Times.

Buffett, one of the world's richest men and chairman of conglomerate Berkshire Hathaway Inc , said his federal tax bill last year was $6,938,744.

"That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income - and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent," he said.

Lawmakers engaged in a partisan battle over spending and taxes for more than three months before agreeing on August 2 to raise the $14.3 trillion U.S. debt ceiling, avoiding a U.S. default.

"Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness," Buffett said.

Buffett said higher taxes for the rich will not discourage investment.

"I have worked with investors for 60 years and I have yet to see anyone - not even when capital gains rates were 39.9 percent in 1976-77 - shy away from a sensible investment because of the tax rate on the potential gain," he said

"People invest to make money, and potential taxes have never scared them off."

Rogers Yahoo Finance
Reuters
Aug. 15, 2011

"U.S. STUDY POINTS TO ALARMING DEFICIENCIES IN ESTATE PLANNING"

2011-08-13T16:37:00.004-04:00

"A U.S. STUDY OF AFFLUENT CLIENTS REVEALS SIGNIFICANT DEFICIENCIES IN THEIR FINANCIAL PLANS, ESTATE PLANS, SUCCESSION PLANS AND COMMUNICATION WITH BOTH THEIR SPOUSES AND THEIR ADVISORS"

ONLY 3% OF WEALTHY BUSINESS OWNERS HAVE A SUCCESSION PLAN IN PLACE

MOST FINANCIAL ADVISORS BELIEVE they're on top of the issues with their key clients. But a recent U.S. study points to alarming deficiencies in estate planning. The study also found there are gaping com¬munication divides between many wealthy investors and their spouses and children, as well as with their advisors.

The research study, conducted this year and commissioned by the U.S. Trust division of Bank of America Corp., surveyed 500 clients with at least US$3 million in investible assets. The survey was conducted among American clients, but there is no reason to believe the findings aren't equally relevant in Canada.

I had referred to this research, along with two other reports, in my column on the coming retirement revolution in the July issue. This study bears more scrutiny because it reveals significant discrepancies in the way high net-worth clients regard their financial plans.

For instance, the study found that even though 84% of parents think their children would benefit from discussions with a financial services professional, six in 10 have never introduced their children to the professionals managing their own financial affairs.

On the issue of philanthropy, the study found, HNW investors are increasingly interested in seeing the impact of their giving now rather than leaving a legacy when they pass away. Despite this trend, four in 10 have never sought advice about legacy planning or philanthropic strategies.

Further, few HNW investors have well developed plans to preserve and pass on their assets, either to their children or to charity. When it comes to financial goals, less than half of wealthy parents put "leaving an inheritance to children" as a priority; it was fifth on the list of things they want to do with their money, just ahead of "having fun."

Yet, many HNW investors consider the success of their children to be one of the most important measures of their own success. So, there is a dramatic divide between the priority that previous wealthy generations gave to transferring wealth to children compared with the importance placed on it by many affluent boomers.

Even if your clients don't have investible assets of $3 million, there are still important lessons from this research.

FINANCIAL PRIORITIES IN RETIREMENT

The study also found that HNW clients, having worked hard for financial security and freedom, now want to be able to travel and focus on relationships.

The importance of travel- not the seniors' bus tours of the past but trips to exotic locales that include activities such as hiking - creates an opportunity for advisors looking to deepen client relationships. Consider exploring a relationship with a travel agent who specializes in travel to unusual destinations for active seniors.

GAPS IN ESTATE PLANS

The U.S. Trust study found huge deficiencies in the estate plans of many HNW investors, some of whom have only basic financial plans and estate plans.

While 88% of the survey's respondents had an estate plan in place, almost four in 10 said those plans are not comprehensive. Almost half of the respondents indicated that there are gaps in their understanding of some aspect of their estate plans.

Most respondents' estate plans contain basic elements, such as a will and beneficiary designations for insurance and retirement savings. But more sophisticated tools - such as revocable trusts, irrevocable trusts, life insurance trusts and charity trusts - were used in only 10%-50% of cases.

Fifty-six percent of those surveyed have not documented their personal property and assets, and half have not documented instructions about the distribution of personal possessions among their heirs often a source of family conflict and heartache in the settlement of estates.

Only 30% of HNW clients in the study have designated a power of attorney. Four in 10 do not have a financial plan that factors in the impact of long-term care or end of-life health-care costs.

Astonishingly, the study also found that only 3% of HNW business owners have a business succession plan in place. That 97% of business owners are without a succession plan should set off alarm bells.

This research report could be a catalyst for talking to your clients about their estate plans. When setting up the next meeting with HNW clients, consider saying: "A recent survey of affluent investors indicated that many had significant gaps in their estate plans around things such as documentation of assets, powers of attorney and the use of different kinds of trusts. I wonder whether this is something we should review in our next meeting."

COMMUNICATION GAPS WITH SPOUSES

Almost all HNW investors have discussed some aspect of their financial situation with their spouses; 90% have talked about taxes, and almost 80% have discussed investment decisions and risk tolerance.

More difficult conversations are less likely to take place. For example, 30% of HNW investors haven't discussed income needs in retirement with their spouses.

One-third of HNW client couples haven't talked about each other's debts and obligations. Four in 10 haven't shared the details of their estate plans. Almost half of the survey respondents haven't discussed plans for long-term care.

(Note that these are overall averages. In every case, men are less likely to have talked about these issues with their wives.)

Ensuring that both members of a client couple fully understand where they stand financially isn't just the right thing to do - failing to do so could expose you to litigation after the "dominant client" passes away.

As this can be a sensitive topic, you can offer to help break the silence. In cases in which you normally deal with only one member of a couple, suggest a meeting that includes the client's spouse. Offer to discuss any unanswered questions about where they stand on their finances.

You can always blame your compliance department for insisting that you have this conversation.

CONCERNS ABOUT CHILDREN AND WEALTH

Even among parents planning to leave an inheritance, many HNW investors in the survey were concerned about whether their children will be prepared to handle it. Among those surveyed, only about one in three "strongly agree" that their children will be able to handle their inheritances.

Two-thirds of respondents said their heirs don't fully understand their wishes on how to divide personal property. Slightly less than half do not believe their children will reach a level of financial maturity to handle the family money they will inherit until they are at least 35 years old. Half have not fully disclosed their wealth to their children, and 15% have disclosed nothing about the family wealth.

Key reasons given for avoiding a discussion about their wealth were: fear that their children would become lazy (24%); they would make poor decisions (20%); they would squander money(20%); or they would be taken advantage of by others (13%).

Sometimes helping HNW clients get what they want from their money can be tricky. There are instances in which clients have made a conscious decision not to share some aspects of their financial situation with their children . .In those cases, you can make suggestions, but you need to draw the line at becoming intrusive.

If your clients are resistant to having these conversations with their children, consider starting with easier conversations - on issues such as dividing personal property (although sometimes this can be tricky) - before getting into more sensitive areas such as overall family wealth.

If your client has a trusted lawyer or accountant, another option is to include that professional in a conversation about how to remove this communication barrier.

GAPS IN CONVERSATIONS WITH ADVISORS

There are also gaps between HNW clients and their financial advisors. Even though 84% of respondents thought their children would benefit from discussions with a financial professional, six in 10 have never introduced their children to the professionals managing their financial affairs.

As well, one in four have never discussed intergenerational wealth transfer with their advisors. Half of those surveyed have never discussed with their advisor ways of teaching children to handle wealth responsibly. Four in 10 haven't discussed legacy goals.

All of these findings point to some very big red flags for advisors.

For the U.S. Trust report, visit:

www.ustrust.com/ust/Pages/Insights-on-Wealth-and-Worth.aspx

Dan Richards
Investment Executive
Audust 2011

Dan Richards is CEO of Clientinsighis (www. clientinsights.ca) in Toronto.

100 - YEAR - OLDS JUST AS UNHEALTHY AS THE REST OF US?

2011-08-13T12:30:00.000-04:00

Centenarians may have a great deal of wisdom to share, but this apparently does not include advice on how to live to age 100.

Researchers at the Albert Einstein College of Medicine of Yeshiva University have found that many very old people — age 95 and older — could be poster children for bad health behavior with their smoking, drinking, poor diet, obesity and lack of exercise.

The very old are, in fact, no more virtuous than the general population when it comes to shunning bad health habits, leaving researchers to conclude that their genes are mostly responsible for their remarkable longevity.

But before you fall off the wagon and start tossing down doughnuts for breakfast just because your Aunt Edna just turned 102, remember that genetics is a game of chance. What didn't kill Aunt Edna still could kill you prematurely, the researchers cautioned.

The chosen few

The study, appearing Aug. 3 in the online edition of the Journal of the American Geriatrics Society, followed the lives of 477 Ashkenazi Jews between the ages of 95 and 112. They were enrolled in Einstein College's Longevity Genes Project, an ongoing study that seeks to understand why centenarians live as long as they do. About 1 in 4,400 Americans lives to age 100, according to 2010 census data.

A research team led by Nir Barzilai compared these old folks with a group of people representing the general public, captured in a snapshot of health habits collected in the 1970s. The people in this control group were born around the same time as the 95-and-above study group, but they have since died.

The living, old people in the study were remarkably ordinary in their lifestyles, Barzilai said. By and large, they weren't vegetarians, vitamin-pill-poppers or health freaks. Their profiles nearly matched that of the control group in terms of the percentage who were overweight, exercised (or didn't exercise), or smoked. One woman, at age 107, smoked for over 90 years.

Whatever killed the control group — cardiovascular disease, cancer and other diseases clearly associated with lifestyle choices — somehow didn't kill them. "Their genes protected them," Barzilai said. [10 Easy Paths to Self Destruction]

Put down that doughnut

Barzilai said that it would be wrong to forego health advice with the assumption that your genes will determine how long you will live. For the general population, there is a preponderance of evidence that diet and exercise can postpone or ward off chronic disease and extend life. Many studies on Seventh Day Adventists — with their limited consumption of alcohol, tobacco and meat — attribute upward of 10 extra years of life as a result of lifestyle choices.

Note also that those people now age 100 lived in an era when obesity was nearly nonexistent and when daily exercise such as walking down streets or up a few flights of steps was more common. Barzilai said anyone can benefit from exercise at any age, even these indestructible old people pushing and exceeding triple digits.

The big picture for the Longevity Genes Project is to identify those genes keeping folks alive for so long and then use them as targets for drug development. For example, most people treated successfully for heart disease ultimately die well before their 90s from yet another age-related disease. This is because we "never change the aging process" with our treatments and cures, Barzilai said.

That is, we can't turn everyone into centenarians by curing one disease at a time.

"Aging is the major risk factor," Barzilai said. If researchers can figure out which genes work to slow aging and make ordinary people more resilient to chronic disease, we all will have a much better chance of reaching our 100th birthday — and have enough breath to blow out the candles.

Christopher Wanjek
LiveScience's Bad Medicine Columnist
Rogers Yahoo News

Aug, 3, 2011

SAVING THE U.S. FROM ITS DECLINE - "GREAT RECESSION"? - "GREAT CREDIT CONTRACTION"? IT'S ALL ABOUT CULTURE

2011-08-08T19:53:00.003-04:00

ANALYSIS

New York Times columnist issues call to fellow Americans

THOMAS L. FRIEDMAN
NEW YORK TIMES

In the wake of the hugely disappointing budget deal and the Standard & Poor's credit downgrade, maybe we need to hang a new sign in the immigration arrival halls at all US. ports and airports. It could simply read:

''Welcome. You are entering the United States of America Past performance is not necessarily indicative of future returns:'

Because this country is now finding itself in the worst kind of decline - a slow decline, just slow enough for us to keep deluding ourselves that nothing really fundamental needs to change if our future is to match our past.

Our slow decline is a product of two inter-related problems. First, we've let our five basic pillars of growth erode since the end of the Cold War - education, infrastructure, immigration of high - IQ innovators and entrepreneurs, rules to incentivize risk-taking and start-ups and government funded research to spur science and technology.

We mistakenly treated the end of the Cold War as a victory that allowed us to put our feet up when it was actually the onset of one of the greatest challenges we've ever faced. We helped to unleash two billion people just like us - in China, India and Eastern Europe. For us to effectively compete and collaborate with them - to maintain the American dream - required studying harder, investing wiser, innovating faster, upgrading our infrastructure quicker aud working smarter.

Instead of doing that at the scale we needed - that is, building muscle - we injected ourselves with massive amounts of credit steroids (just like our baseball players). This enabled millions of people to buy homes they could not afford and to fill jobs in construction and retail that did not require that much education.

Our European friends went on a similar binge.

All this debt blew up in 2008 in the U.S. and Europe, and that led to the second problem: Homeowners, firms, banks and governments are all now "deleveraging" or trying to - meaning that they are saving more, shopping less, paying off debts and trying to dig out from mortgages that are underwater.

No one better explains the implications of this than Kenneth Rogoff, a professor of economics at Harvard, who argued in an essay last week for Project Syndicate that we are not in a Great Recession but in a Great (Credit) Contraction:

The challenge is to deleverage the economy as fast as possible

A traffic sign near the U.S. Capitol has it right: The economy shudders to a stop and the U.S. hits a Great Credit Contraction, not a Great Recession.

"Why is everyone still referring to the recent financial crisis as the 'Great Recession?''' asked Rogoff. "The phrase 'Great Recession' creates the impression that the economy is following the contours of a typical recession, only more severe - something like a really bad cold ....

"But the real problem is that the global economy is badly over leveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation ...

"In a conventional recession," Rogoff noted, "the resumption of growth implies a reasonably brisk return to normalcy. The economy not only regains its lost ground, but, within a year, it typically catches up to its rising long-run trend .The aftermath of a typical deep financial crisis is something completely different ... It typically takes an economy more than four years just to reach the same per capita income level that it had attained at its pre-crisis peak ...

Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a 'Great Recession.' But, in a 'Great Contraction; problem No. l is too much debt."

Until we find ways to restructure and forgive some of these debts from consumers, firms, banks and governments, spending to drive growth is not going to come back at the scale we need.

Our challenge now, therefore, is to deleverage the economy as fast as possible, while, at the same time, getting back to investing as much as possible in our real pillars of growth so our recovery is built on sustainable businesses and real jobs and not just on another round of credit injections.

Regarding deleveraging, Rogoff suggests, for example, that the government facilitate the writing down of mortgages in exchange for a share of any future home-price appreciation.

Regarding growth, we surely need a much smarter long-term fiscal plan than the one that just came out of Washington.

We need to cut spending in areas and on a time schedule that will hurt the least; we need to raise taxes in ways that will hurt the least (now is the perfect time for a gasoline tax rather than payroll taxes); and we need to use some of these revenues to invest in the pillars of our growth, with special emphasis on infrastructure, research and incentives for risk-taking and startups. We need to offer every possible incentive to get Americans to start new businesses to grow out of this hole.

If juggling all these needs at once sounds hard and complicated, it is. There is no easy, one-policy fix. We need to help people deleverage, cut some spending, raise some revenues and reinvest in our growth engines - as an integrated strategy for national renewal.

Something this big and complex cannot be accomplished by one party alone.

It will require the kind of collective action usually reserved for national emergencies.

The sooner we pull together the better .

THE CASE FOR FINANCIAL 'FITNESS'

2011-08-07T22:41:00.000-04:00

WHEN NIKE STOPPED SELLING SHOES AND BEGAN SELLING FITNESS

During a 1988 meeting between Nike's ad agency Wieden + Kennedy and some Nike employees, the agency's co-founder Dan Wieden proclaimed: "You Nike guys, you just do it," according to Nike legend.

But it would take more than a brilliant tagline to create the gargantuan global brand that Nike is today.

Nike's brand was built over three decades of strategic marketing, which looked to make Nike the ultimate symbol of the human body's capabilities. Nike's true strength doesn't lie in its vast exposure. The brand is so powerful because it has become synonymous with athletics, fitness and health.

Co-founded by entrepreneur Phil Knight and track & field coach Bill Bowerman back in 1964 as Blue Ribbon Sports, Nike boasted athletic roots right from the get-go, but the company didn't make the big leap until it took advantage of the jogging and fitness craze that swept the country in the late 1980s.

"Just Do It" began to accompany the white Nike Swoosh logo during this same period. Soon, Nike didn't even have to put its name in its ads and it flew past rival Reebok, who had overtaken Nike earlier in the decade. It also gained future basketball icon Michael Jordan's endorsement, again emphasizing stellar athletic performance, which had a particularly massive long-term impact on Nike's business. “Brand Jordan today sells about twice as much product around the world as when he was playing,” Knight told CNBC in 2008.

Since its new era began, Nike has stayed consistent with its message in both advertising and product development. Some of Nike's most recent marketing campaigns include anti-obesity ads in China that encourage exercise and women's health spots that target females of all sizes. And it has stayed up to date as marketing gains new platforms -- there's even an app that allows you compete virtually with your friends over Facebook as you work out daily.

But there are still lingering scars for Nike. Its brand reputation has taken constant hits over the years due to labor abuse accusations and investigations in its overseas manufacturing facilities.

Nike has also been oft-criticized for sticking by athlete spokespersons that have been shamed by scandal, but it's just another part of the Nike brand. It only cares about performance -- as long as these athletes still represent the pinnacle of their sports, Nike will stand by them, as it showed by keeping golf superstar Tiger Woods on the payroll through his huge scandal. A notable exception was Michael Vick, whose dog-fighting antics landed him in jail and kept him off the gridiron. Vick recently re-signed with Nike, four years after being dropped.

Beyond its catchy taglines and creative commercials, at its core Nike's brand is just looking to represent athletic fitness -- and to sell millions and millions of shoes.

Kim Bhasin
Rogers Yahoo Finance
August 1, 2011

BOOMERS – TODAY’S DEMOGRAPHIC

2011-08-03T23:32:00.000-04:00

Older Americans: A Changing Market,

Twenty-five years ago, if you asked someone to describe the typical older American, you’d likely get a snapshot of a gray-haired woman with glasses, sitting on the front porch knitting scarves for her grandchildren. Ask what this grandmother purchased regularly and you’d probably hear a fairly short list—prescription drugs, home-medical supplies, and maybe an occasional bus trip to Atlantic City.

Today, that image is all but shattered. While there are still plenty of gray-haired grandmas who like to knit, there are far more older adults who are reinventing what it means to grow old in America. Instead of seeing their mature years as a time to sit back in rocking chairs, they’re gearing up for their next adventure in the 20-plus “bonus” yearsthey now have ahead of them. Armed with greater longevity and better health, they plan to keep working or maybe change careers altogether, buy a new home or remodel their
old one, travel to exotic locales or take the grandkids on an overnight trip—and finally do everything else they’ve put off while raising their families and working full-time. What’s more, the majority of today’s 55+ Americans are financially ready and able to purchase the products and services they need to make their plans a reality.

The 55+ population is changing dramatically—driven in large part by the aging Baby Boom generation that is more educated, healthier, and wealthier than any generation before it. The leading edge of the Boomers (born from 1946–1964) turned 60 in 2006, and behind them is a tidal wave of Americans heading toward redefining the 55+ demographic.

Today’s 55+ population is:

• Growing rapidly. The number of Americans age 55 and over will jump from 67 million in 2005 to 97 million in 2020. This enormous 45 percent gain compares with an only 14 percent projected increase for the U.S. population as a whole.

• Living longer. In 1900, the average 65-year-old could expect to live 11.9 more years; by 2003, that number rose to 18.5 years.

• Better educated. Until 1980, the majority of older Americans had not completed high school. Today, nearly 80 percent of 55-year-olds have a high school diploma, and 23 percent have a bachelor’s degree or more. These numbers are only increasing as the Baby Boomers age.

• Committed to homeownership. Older adults have the highest homeownership rate among Americans, with more than 80 percent of householders age 55 and over owning homes.

• Better off financially. Among the nation’s 18 million households with incomes of $100,000 or more, 27 percent are age 55+. This age group also has substantial financial assets, including stocks. Between 2001 and 2004, people age 55–64 saw their net worth increase 29 percent.

• Spending more. When compared with other age groups, older consumers’ spending is growing faster and is already above average. Among Americans age 55–64, spending rose 10 percent from 2000 to 2004, including more spent on discretionary items.

Source: Older Americans: A Changing Market, 5th Edition, New Strategist Publications.

These are just some of the numbers that are forcing today’s businesses to sit up and take notice of this huge and powerful group of consumers. No longer can “55+ marketing” be relegated to the senior housing and healthcare industries. Today, every business in America must ask itself, “Are we prepared to serve consumers over age 55?”

Society of Certified Senior Advisors

Aug. 03, 2011

WEALTH MANAGER: WHAT'S A TITLE WORTH? MILLIONS, MAYBE

2011-08-02T17:54:00.003-04:00

(Reuters) - If you're a wealth manager and working with clients who have more than $1 million in investable assets -- or aspiring to be one -- does it matter what title you have on your business card?

There are now 118 "professional designations," or certifications, according to the Financial Industry Regulatory Authority web site (www.finra.org/). But only a few are geared specifically for wealth management. Only one, the Certified Private Wealth Advisor (CPWA), has emerged as a widely-recognized title in the industry for its focus on solving wealthy clients' complex needs beyond merely managing a portfolio.

Two other designations, Certified Financial Planner (CFP) and Certified Financial Analyst (CFA), cover more general ground, but are also widely-respected in wealth management circles. They are considered invaluable cornerstones for financial advisers shifting their focus to clients' life goals instead and relying less on asset accumulation.

Industry veteran Tim Kochis, director of new business lines for Aspiriant, is considered one of the pioneers of wealth management, and describes the CFP designation as a "threshold" for demonstrating core competency. Wealth managers "are not taken seriously without it," he said.

Doug Black, a 30-year industry veteran who consults wealthy families on selecting advisers, also sees high value in CFP and CFA designations. Black, who was chief operating officer of UBS' private wealth management division and now heads SpringReef Partners, said that the Certified Investment Management Analyst (CIMA) designation also scored highly.

"To us CIMA means someone has a high level of competency and understanding of asset management and the financial markets," he said.

CIMA and CPWA are both issued by the Investment Management Consultants Association, a non-profit organization based in Colorado with a membership of over 8,000 financial advisers.

CIMA, which focuses on investment advice and asset management, began in 1988 and is now held by over 6,200 advisers. The CPWA, which covers tax, estate and retirement planning, was launched in 2008 and is held by about 400 advisers.

RISING INTEREST FROM ADVISERS

Interest is rising among big brokerage firms, banks and independent advisers who want to learn the special needs of the wealthy, who require different needs, like trust services, or worry more about capital preservation and distribution than accumulation.

The number of applicants for CPWA tag has doubled from last year's 100. The increase comes despite its cost of around $7,500 and a rigorous course of study (six months of online courses; a week of classes at the University Of Chicago, a half-day examination and continuing education requirement).

"We saw increasing interest from advisers who want to connect with a more profitable market of high-net-worth individuals, and also advisers who had begun working with those clients but realized they may have bitten off more than they could chew," said Sean Walters, IMCA's chief executive.

GOOD AT POINT OF SALE

The wealth designation alone is no guarantee of success.

"A credential is like a driver's license," Black said. "Having a driver's license and being a good driver are two very different things."

Still, he said, a certification to handle ultra-high-net worth clients, such as the CPWA, is "a step in a positive direction" for wealth management education.

Keith Clemens, a Merrill Lynch adviser in the Atlanta suburb of Alpharetta, Georgia, said the CPWA designation has enabled him to tap new markets.

"Before I studied for the CPWA, I really didn't have the working knowledge about areas like stock options for corporate executives," he said. "Now I do, and I'm able to step in immediately."

LPL's John Moninger, who heads the broker-dealer's high-net-worth unit for targeting clients with $5 million or more, said he found the CPWA beneficial as a resource and a marketing tool.

"I was able to build a lot of great contacts for expertise in subject areas I need to know about and have a better Rolodex as a result," Moninger said.

DUE DILIGENCE REQUIRED

No matter what designation a wealth manager chooses to pursue, it's critical to vet it first.

The designations and certifications aren't regulated, but they are monitored by state regulatory agencies, the Securities and Exchange Commission and FINRA.

The best place to start is FINRA's Professional Designations database, which provides key information such as the issuing organization, educational requirements, what type of exams are given, continuing education and experience requirements and the investor complaint or public disciplinary process - if there are any.

FINRA, which regulates broker-dealers but not investment advisers, cautions that it doesn't approve or endorse any of the designations, and that state securities regulators may prohibit or restrict the use of some designations by both brokers and investment advisors.

FINRA has cracked down on designations that use the term "senior" or "elder."

What's more, warns FINRA spokesperson Nancy Condon, brokers "may not use a professional designation in a way that could mislead the investing public, such as by exaggerating the designation's significance or the extent to which it demonstrates the registered representative's expertise."

Charles Paikert
NEW YORK
Tue Jul 26, 2011

Charles Paikert covers wealth management and family offices from New York. The opinions expressed are his own.

THE CASE FOR A FIDUCIARY RESPONSIBILTY OF FINANCIAL ADVISORS TO THEIR CLIENTS

2011-07-31T20:04:00.002-04:00

HIGH-NET-WORTH INVESTORS DEMANDING MORE FROM PLANNERS

If financial planners want to make more inroads with high-net-worth (HNW) clients, they need to provide a broader and more integrated set of capabilities.

That is the bottom line of the Merrill Lynch Global Wealth Management and Capgemini World Wealth Report, released today, which argues that an enterprise value approach is especially critical in today’s environment because HNW clients expect their relationships with firms and advisers to create more sustained and broad value than before the global financial crisis (GFC).

Commenting on the findings of the report, Merrill Lynch Global Wealth management head John Thiel said that while an air of normality was returning to global financial markets, HNW investors had been deeply impacted by the effects of the GFC.

“Many high-net-worth clients have clearly rethought their investment and life goals and are now heavily weighing the amount of risk they are willing to assume in order to reach those goals,” he said.

Thiel said firms would need to bring the full force of their capabilities to bear to deliver an integrated response to the complex post-GFC needs of HNW investors.

The Merrill Lynch Capgemini research suggested that capital preservation had become more important to HNW investors, along with effective portfolio management.

Capgemini Global Financial Services head of sales and marketing, Jean Lassignardie, said that although HNW investors took on more calculated risk in search of better returns, at the end of 2010, they still held a significant amount of their assets in more conservative instruments such as fixed-income and cash and equivalents.

“Amid this mixture of trust and misgivings, firms and advisors must continually demonstrate their value and relevance to help HNWs meet their changing and complex needs,” Lassignardie said.

Mike Taylor
Money Management
June 23, 2011

SOLVENCY 101 - A COMMON SENSE PRIMER

2011-07-31T16:14:00.002-04:00

How to calculate what you can really afford

Live within your means!

You've found the perfect sofa for your living room. You need a sofa, right? A person has to sit somewhere. But can you afford the new sofa? For many people, 'afford' means having room on the credit card. Unfortunately, there is a big difference between having the means to pay for something and being able to truly afford it.

In today's consumerist society, living within one's means can seem like a quaint, old-fashioned notion, like paying cash for everything. However, knowing your financial limits and living within them remains the primary secret to attaining wealth and financial security.

You can probably justify any purchase to yourself — if you really want it. By denying the limits of your income and expenses however, you can quickly find yourself in serious financial trouble, on the basis of just a few too many purchases that you erroneously thought you could afford.

Your TDS ratio

There is a simple way to calculate what you can afford - or how much you have available to spend — on a monthly basis. It's called the Total Debt Service ratio or TDS, as those in the financial-know like to say.

The rule of thumb for TDS is that all your monthly debt payments should be less than 40 per cent of your gross monthly income. This 40 per cent should include your housing costs (rent or mortgage payments), your car payments (leases or loans) and all the other credit payments you make each month - including credit cards (yes, those too!), lines of credit, student loans and other personal loans.

If you can keep your debt payments within 40 per cent of your income, then the remaining 60 per cent can be allotted to 'discretionary' spending — such as groceries, clothing, entertainment, transportation costs and your shopping habit.

Here is how to calculate your TDS ratio in three easy steps, so you can see how you're currently faring; either do it personally or with your spouse to determine a household figure.

• Step one: your salary income

Check your pay statements to determine your gross monthly salary. This means what you earn in total each month, before deductions such as taxes and CPP are taken off. If you are calculating your household TDS, rather than just your own, then add your hubby's gross monthly salary as well.

• Step two: add any other income

Now add any income that you receive on a regular, monthly basis. Maybe it's child support payments, investment income or cash from a part-time job. (Maybe trust fund payments or royalties from the songs you wrote for Beyoncé? Don't we all wish!)

• Step three: multiply by 0.40

Take your total income (step 1 + step 2) and multiply the total by 0.40. Voila! The result is your total debt service ratio — the maximum amount you can afford to spend on your monthly debts and expenses.

The upper limit

Suppose, for example, your TDS calculates to $1800. If you find you are actually spending less on your housing, loan payments and expenses - say $1500 a month - then congratulations frugal girl! Technically, you are living within your means. Just remember, that TDS calculation represents your upper limit.

On the other hand, if you are actually spending more than your TDS figure on monthly debt obligations, then your ability to afford the rest of your life probably feels severely constrained. Try to re-negotiate loan payments and make it a priority to pay down those debts and get your TDS back in line.

The other 60 per cent

The less you spend within your TDS ratio, the more disposable income you will have to enjoy each month. If your expenses and monthly obligations keep you at the 40 per cent limit, then you still have 60 per cent of your income for the business of daily living. By outlining a simple monthly budget of how much of that money has to go toward gas money, subway fare, groceries and other essentials, you can quickly estimate how much you have left each month to spend on fun stuff — like shopping (and SAVING, of course).

Your bottom line

Living within your means starts with knowing your means. With a credit card in hand, it's so tempting to make purchases and tell yourself you can afford it by cutting back in other areas. The trouble is, that kind of impulse spending often leads you to dipping into money that is earmarked for paying bills — and your finances quickly get messy. Know your limits and live well!

Golden Girl Finance
July 26, 2011

Golden Girl Finance.ca is a free personal finance and education site for women.
Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.

THE CASE FOR HIGH PERFORMANCE COACHING

2011-07-30T07:46:00.001-04:00

David Beckham credits his career to Sir Alex Ferguson for giving him his start at Manchester United

The English midfielder completed 90 minutes against his old club Manchester United on Wednesday night as part of the MLS All-Star team. In addition to his fan allegiance to the reigning English champion, the shared history made it an emotional venture for the 36-year-old midfielder.

“Obviously, to play against Manchester United still with Sir Alex Ferguson as manager, still with some of the players I played with and the fans I played in front of for many years, is emotional,” Beckham said. “It's always going to be emotional coming up against Manchester United. It's always difficult as well.”

MLS quickly learned just how difficult playing the Red Devils can be. Two goals against the run of play in the first half paved the way for a comprehensive 4-0 win to the team still in preseason preparations.

Beckham wasn't surprised at the gap in the scoreline.

“If you play at that level you don't stop at one-, two-nil,” the midfielder said. “You want to work hard because you want to get your fitness. You're not playing at a club like Manchester United to go through the motions and just to win 1-0.”

That competitive mentality saw Man United win the Premier League season with perhaps a more functional than glitzy roster. It's the same sort of mentality the side used to win the 1999 treble, Beckham claims, and it starts in the youth teams.

“Any new player who comes into Manchester United, they feel that straight away,” the LA Galaxy Designated Player said. “That seems instilled into you from a very young age as a Manchester United youth team player and it carries on all the way through the team. It's [a] never-say-die attitude, is what Manchester United have.”

Shane Evans
Goal.com
July 28, 2011

THE REVALUATION OF SOCIAL MEDIA

2011-07-24T18:29:00.000-04:00

McKinsey Consulting looks at social technology as more than social media. They view “social technology” as a significant enhancement to collaboration and communication processes. An enhancement that changes everything a business does, not just marketing and advertising. What new value can be created by improving communications and collaboration? Everything!

In an In article titled “Using technology to improve workforce collaboration“ James Manyika, Kara Sprague and Lareina Yee writes: Raising the quality of these interactions is largely uncharted territory. Taking a systematic view, however, helps bring some of the key issues into focus. Our research suggests that improvements depend upon getting a better fix on who actually is doing the collaborating within companies, as well as understanding the details of how that interactive work is done. Just as important is deciding how to support interactions with technology—in particular, Web 2.0 tools such as social networks, wikis, and video. There is potential for sizeable gains from even modest improvements. Our survey research shows that at least 20 percent and as much as 50 percent of collaborative activity results in wasted effort.

To put this in better perspective consider what happens when organizations use social media solely as advertising and marketing channel. They are likely to initially get the markets attention and in doing so increase the cost of responding to said attention. Worse, the market takes notice then criticizes the brand or organization for terrible service, poor customer relations or “spamming” the market. Worse yet is that the organizations employee attitudes reflected in their online conversations produce a negative sentiment about the organization. These incidents are happening everywhere because organizations do not think systemically about social technology. Rather they think about marketing and advertising. That thinking represents devolution.

Revaluations are driven by efficiency, effectiveness and innovation. Devolution of social media are the results of doing things that reduce the value of communications. It’s time to create a revaluation of this thing being called social media. That can only happen when there is a revolution in thinking. That would require a revolution in “what” we believe.

Jay Deragon
The Relationship Economy
July 22, 2011

USING TECHNOLOGY TO IMPROVE WORKFORCE COLLABORATION

2011-07-24T16:08:00.001-04:00

McKinsey & Company

Knowledge workers fuel innovation and growth, yet the nature of knowledge work remains poorly understood—as do the ways to improve its effectiveness. The heart of what knowledge workers do on the job is collaborate, which in the broadest terms means they interact to solve problems, serve customers, engage with partners, and nurture new ideas. Technology and workflow processes support knowledge worker success and are increasingly sources of comparative differentiation. Those able to use new technologies to reshape how they work are finding significant productivity gains. This article shares our research on how technology can improve the quality and output of knowledge workers.

Knowledge workers are growing in numbers. In some sectors of the economy, such as healthcare providers and education , they account for 75 percent of the workforce; in the United States, their wages total 18 percent of GDP. The nature of collaborative work ranges from high levels of abstract thinking on the part of scientists to building and maintaining professional contacts and information networks to more ground-level problem solving. Think of a buyer for a retail chain whose distributed web of contacts span fashion designers in Tokyo to experts on manufacturing in Brazil.

For companies, knowledge workers are expensive assets—earning a wage premium that ranges from 55 percent to 75 percent over the pay of workers who perform more basic production and transaction tasks. Yet there are wide variations in the performance of knowledge workers, as well as in their access to technologies that could improve it. Our research shows that the performance gap between top and bottom companies in collaboration-intense sectors is nine times that of production- or transaction-intense sectors.1 And that underscores what remains a significant challenge for corporations and national economics alike: how to improve the productivity of this prized and growing corps of workers (Exhibit 1).

Unfortunately, the productivity measures for collaboration workers are fuzzy at best. For production workers, productivity is readily measured in terms of units of output; for transaction workers, in operations per hour. But for knowledge workers, what might be thought of as collaboration productivity depends on the quality and quantity of interactions occurring. And it’s from these less-than-perfectly-understood interactions that companies and national economies derive important benefits. Consider the collaborative creative work needed to win an advertising campaign or the high levels of service needed to satisfy public citizens. Or, in a similar vein, the interplay between a company and its customers or partners that results in an innovative product.

Raising the quality of these interactions is largely uncharted territory. Taking a systematic view, however, helps bring some of the key issues into focus. Our research suggests that improvements depend upon getting a better fix on who actually is doing the collaborating within companies, as well as understanding the details of how that interactive work is done. Just as important is deciding how to support interactions with technology—in particular, Web 2.0 tools such as social networks, wikis, and video. There is potential for sizeable gains from even modest improvements. Our survey research shows that at least 20 percent and as much as 50 percent of collaborative activity results in wasted effort. And the sources of this waste—including poorly planned meetings, unproductive travel time, and the rising tide of redundant e-mail communications, just to name a few—are many and growing in knowledge-intense industries.

There are some companies that already are tackling aspects of this collaboration–technology nexus. Cisco Systems, for example, set out to improve interactions between its technology specialist sales teams and enterprise customers. Frequent travel and stepped-up job requirements had resulted in overstretched teams whose effectiveness had become diminished. Cisco tackled the problem by mandating the use of its own video technologies, as well as other collaboration tools. The plan was straightforward: reach more customers and business partners by shifting a large portion of in-person meetings to virtual interactions. Policy and governance changes ensured that technology use became part of daily workflows and not an added task. Over an 18-month period, the initiative saved Cisco more than $100 million in travel and business expenses and reduced the company’s carbon emissions by 24 million metric tons. Internal surveys showed that 78 percent of the targeted employees reported increased productivity and improved lifestyles without diminishing customer or partner satisfaction.

Similarly, P&G has also adopted Web-based technologies to forge better links with partners and customers and to improve the flow of ideas across corporate and regional boundaries. It also set up ideas markets to gather and filter offerings from across the company and signed on with crowd-sourcing network InnoCentive to tap external experts to solve specific problems. In addition, the company used a collaboration strategy to broaden its product offerings and get more of them to market at a faster pace. It set a target of raising the proportion of new products sourced from outside its walls to 50 percent, from 35 percent. Besides the savings P&G realized from nearly a thousand fewer business trips each month, the company met its goals of shorter product cycle times and greater product innovation from external sources.2

But most companies are only beginning to take these paths. That’s because, in many respects, raising the collaboration game differs from traditional ways of boosting productivity. In production and transaction work, technology use is often part of a broader campaign to reduce head counts and costs—steps that are familiar to most managers. In the collaboration setting, technology is used differently. It multiplies interactions and extends the reach of knowledge workers. That allows for the speedier product development found at P&G and improved partner and customer intimacy at Cisco. In general, this is new terrain for most managers.

IMPROVING COLLABORATION

The interactive graphic that accompanies this article provides a synthesis of our view on how organizations can improve collaboration. It draws upon our work with companies, non-profit organizations as well as our own research and that of outside sources. The graphic’s multilevel approach to improving collaboration is based on the following steps:

1) classify workers by their workflow profile – the daily activities they do to perform their job

2) match new technologies to the workflows to extend collaboration efforts, improve effectiveness, and reduce inefficiencies

The discussion that follows is both a guide to the interactive and an elaboration on the thinking behind it.

Defining knowledge workers and how they work

As a first step, companies should take a fresh look at their workers, classifying them by how they collaborate. We have identified 12 types of collaboration work (see the interactive exhibit, “Collaboration types and tools”). Each of these is broken down into the day-to-day interactive activities (or workflows) that comprise these work classes. Today most organizations segment their employees by their positions within the corporate hierarchy. They are identified by job titles that, in many cases, obscure the kind of work they actually do. Take the title of manager. Seen through a collaboration lens, this title is often applied to several different collaboration types: in some, a manager builds teams, develops team members’ expertise, sets objectives, and encourages results; in others, a manager is more of an administrator who repeatedly executes processes (such as monitoring the work of others) to a certain standard. Many companies also award the title of manager to the consultant collaboration type – individual contributors who convene or take part in virtual teams to solve problems. Thus, improving collaboration should start with understanding employee workflows to get a more refined view how their work gets done.

At the same time, functional groups—such as sales and marketing, finance, and strategy—within organizations often divide into an array of job classifications that multiply over time. Yet these classifications don’t reflect the interactive aspects of the work. In our experience, jobs within many functional organizations can be grouped into a small number of collaboration types that reflect such interactions. This simplifies the task of improving collaboration. Take the case of one sales organization, where work was splintered into 50 distinct roles. Using interaction requirements as our guide, we found these roles reflected three basic collaboration types: sales people, managers, and administrators. In most sales organizations, each type of sales job is distinct and siloed: employees doing telesales and enterprise sales are given distinct corporate job codes and internal classifications, because they may have somewhat different skill sets. But the process workflows of these jobs are essentially the same—employees receive sales plans or quotas from management, build account plans, and generate and act upon sales leads, etcetera.

Applying technologies

Improving employee collaboration also depends on selecting the technologies that support their interactions. Companies can best do this by 1) understanding the specific requirements of interactive tasks; 2) identifying which tasks create disproportionate value for the organization; and 3) determining the types of inefficiencies and wasted efforts that bog down many interactions.

Requirements. Even within a given group of collaboration workers, the required interactions and technology solutions may vary substantially. For example, collaboration between two individuals working together on an account plan is very different from that of several dozen individuals meeting to coalesce around a sales strategy. Collaboration work, we have found, varies over a dozen such dimensions—including the scope of the collaboration (number of parties involved), which way information is flowing among the participants, whether participants exchange information equally, and whether the interactions stretch across functional or corporate borders. We examine these dimensions when assigning technologies to collaboration workflows.

Value. Not all interactions are created equal. Some organizations will prioritize focus on collaboration types and even specific activities based on their relative contribution to the organization’s objectives. For Cisco, this means a strong focus on partner and customer intimacy. For P&G, it is about increasing access to new ideas and speed to market. Other common objectives for collaboration initiatives include better talent management, business agility, and a reduced carbon footprint. Imagine the economic benefits for organizations able to double the number of inspired employees or triple the volume of new product releases.

Waste. We have documented 10 types of collaboration waste (Exhibit 2). In the case of managers, for example, effective collaboration demands that the manager not only agrees on specific objectives but also that he /she can communicate how to achieve them. Those efforts can be undermined by divergence (for example, sending teams in different, conflicting directions), misunderstanding (for instance, gaps between the message communicated and the resulting execution), and under- or overcommunicating, as well as other types of flawed interactions.

Web technologies can diminish the wasted efforts. Take the case of “searching”: inefficiencies arise when a staffer is unclear about which colleague within the organization may be tapped for specific knowledge to solve a problem. One remedy is network mapping, a technology that plots work relationships among individuals, reducing search time by providing insights into the pools of knowledge within the company,

Meanwhile, as more of knowledge workers’ output involves digital content, other forms of waste multiply. Fact checking, annotations, and edits lead to handoffs and serial revisions that we term “interpretation” waste. Similarly, as this digital information often must serve audiences across distribution channels—printed documents, PowerPoint slides, and videos, for example—inefficiencies arise from “translation.” At times content is needlessly reworked or even distorted as it crosses channel boundaries. Collaboration technologies such as Google Docs, Adobe’s Acrobat.com, or Microsoft’s OfficeLive allow for coauthoring and co-editing content documents. Since parties are frequently tackling the same project at the same time, translation and interpretation waste is reduced.

From our research on workflows across a variety of companies we are able to arrive at benchmarks for the most effective way of performing a task. With that knowledge we can identify inefficient practices and select technologies with which to improve them.

MOVING FORWARD

Furthering collaboration excellence demands mind-sets and capabilities that are unfamiliar and sometimes even counterintuitive to many business managers. It requires trusting your collaboration workers to arrive at creative solutions rather than enforcing top-down policies. Business managers should allow time and provide forums for collaboration workers to brainstorm solutions to productivity problems. Corporate technology providers will need to provide tools that are flexible enough to enable experimentation, so that usage and adoption are widespread.3

While the broad gains from better workforce collaboration have been apparent for some time, the management approach and tools needed to capture the benefits at the company level have been missing. By using the methodology outlined here, companies can improve productivity among the growing ranks of their knowledge workers.

1 This was measured as the average earnings before income, taxes, depreciation and amortization per employee.

2 Larry Huston and Nabil Sakkab, “Connect and develop: Inside Proctor & Gamble’s new model for innovation,” Harvard Business Review, March 2006, Volume 84, Number 3, pp. 58–66.

3 Michael Chui, Andy Miller, and Roger P. Roberts, Six ways to make Web 2.0 work, September 2009.

Jacques Bughin, Michael Chui, and Andy Miller, How companies are benefiting from Web 2.0, September 2009.

James Manyika, Kara Sprague and Lareina Yee
McKinsey & Company
27 October 2009

PROFESSIONAL ENGINEERS - ARE STRAIGHT ARROWS

2011-07-24T15:33:00.002-04:00

Definition

Engineer

From Wikipedia, the free encyclopedia

An engineer is a professional practitioner of engineering, concerned with applying scientific knowledge, mathematics and ingenuity to develop solutions for technical and practical problems. Engineers design materials, structures, machines and systems while considering the limitations imposed by practicality, safety and cost.[1][2] The word engineer is derived from the Latin root ingenium, meaning "cleverness".[3]

Engineers are grounded in applied sciences, and their work in research and development is distinct from the basic research focus of scientists.[2] The work of engineers forms the link between scientific discoveries and their subsequent applications to human needs.[1

Roles and expertise

Design

Engineers develop new technological solutions. During the engineering design process, the responsibilities of the engineer may include defining problems, conducting and narrowing research, analyzing criteria, finding and analyzing solutions, and making decisions. Much of an engineer's time is spent on researching, locating, applying, and transferring information.[4]

Engineers must weigh different design choices on their merits and choose the solution that best matches the requirements. Their crucial and unique task is to identify, understand, and interpret the constraints on a design in order to produce a successful result.

Analysis

Engineers apply techniques of engineering analysis in testing, production, or maintenance. Analytical engineers may supervise production in factories and elsewhere, determine the causes of a process failure, and test output to maintain quality. They also estimate the time and cost required to complete projects. Supervisory engineers are responsible for major components or entire projects. Engineering analysis involves the application of scientific analytic principles and processes to reveal the properties and state of the system, device or mechanism under study. Engineering analysis proceeds by separating the engineering design into the mechanisms of operation or failure, analysing or estimating each component of the operation or failure mechanism in isolation, and re-combining the components. They may analyse risk.[5][6][7][8]

Many engineers use computers to produce and analyze designs, to simulate and test how a machine, structure, or system operates, to generate specifications for parts, to monitor the quality of products, and to control the efficiency of processes.

Specialization

Most engineers specialize in one or more engineering disciplines.[1] Numerous specialties are recognized by professional societies, and each of the major branches of engineering has numerous subdivisions. Civil engineering, for example, includes structural and transportation engineering, and materials engineering includes ceramic, metallurgical, and polymer engineering. Engineers also may specialize in one industry, such as motor vehicles, or in one type of technology, such as turbines or semiconductor materials.[1]

Ethics

The Challenger disaster is held as a case study of engineering ethics.

Engineers have obligations to the public, their clients, employers and the profession. Many engineering societies have established codes of practice and codes of ethics to guide members and inform the public at large. Each engineering discipline and professional society maintains a code of ethics, which the members pledge to uphold. Depending on their specializations, engineers may also be governed by specific statute, whistleblowing, product liability laws, and often the principles of business ethics.[9][10][11]

Some graduates of engineering programs in North America may be recognized by the Iron Ring or Engineer's Ring, a ring made of iron or stainless steel that is worn on the little finger of the dominant hand. This tradition began in 1925 in Canada with The Ritual of the Calling of an Engineer, where the ring serves as a symbol and reminder of the engineer's obligations for the engineering profession. In 1972, the practice was adopted by several colleges in the United States including members of the Order of the Engineer.

Education

École centrale Paris, one of the oldest and most prestigious engineering schools in France

Most engineering programs involve a concentration of study in an engineering specialty, along with courses in both mathematics and the physical and life sciences. Many programs also include courses in general engineering. A design course, sometimes accompanied by a computer or laboratory class or both, is part of the curriculum of most programs. Often, general courses not directly related to engineering, such as those in the social sciences or humanities, also are required.

Graduate training is essential for engineering faculty positions and some research and development programs, but is not required for the majority of entry-level engineering jobs. Many experienced engineers obtain graduate degrees in engineering or business administration to learn new technology and broaden their education. Numerous high-level executives in government and industry began their careers as engineers.

Accreditation is the process by which engineering program are evaluated by an external body to determine if applicable standards are met. The Washington Accord serves as an international accreditation agreement for academic engineering degrees, recognizing the substantial equivalency in the standards set by many major national engineering bodies. In the United States, post-secondary degree programs in engineering are accredited by the Accreditation Board for Engineering and Technology. In much of Europe and the Commonwealth professional accreditation is provided by Engineering Institutions, such as the Institution of Civil Engineers,the Institution of Mechanical Engineers or the Institution of Engineering and Technology from the United Kingdom.

Regulation

In many countries, engineering tasks such as the design of bridges, electric power plants, and chemical plants, must be approved by a licensed engineer. Most commonly titled as Professional Engineer or Chartered Engineer, the status of professional licensing is often indicated with the use of post-nominal letters; PE or P.Eng is common in North America, Eur Ing in Europe, while CEng and IEng is used in the United Kingdom and CEng in much of the Commonwealth.

In the United States, licensure is generally attainable through combination of education, pre-examination (Fundamentals of Engineering exam), examination (Professional Engineering Exam),[12] and engineering experience (typically in the area of 5+ years). Each state tests and licenses Professional Engineers. Currently most states do not license by specific engineering discipline, but rather provide generalized licensure, and trust engineers to use professional judgement regarding their individual competencies; this is the favoured approach of the professional societies. Despite this, however, at least one of the examinations required by most states is actually focused on a particular discipline; candidates for licensure typically choose the category of examination which comes closest to their respective expertise.

In Canada, the profession in each province is governed by its own engineering association. For instance, in the Province of British Columbia an engineering graduate with four or more years of post graduate experience in an engineering-related field and passing exams in ethics and law will need to be registered by the Association for Professional Engineers and Geoscientists (APEGBC) [13] in order to become a Professional Engineer and be granted the professional designation of P.Eng allowing one to practice engineering.

In Continental Europe, Latin America, Turkey and elsewhere the title is limited by law to people with an engineering degree and the use of the title by others is illegal. In Italy, the title is limited to people who both hold an engineering degree and have passed a professional qualification examination (Esame di Stato). In Portugal, professional engineer titles and accredited engineering degrees are regulated and certified by the Ordem dos Engenheiros. In the Czech Republic, the title "engineer" (Ing.) is given to people with a (masters) degree in chemistry, technology or economics for historical and traditional reasons. In Greece, the academic title of "Diploma Engineer" is awarded after completion of the five-year engineering study course and the title of "Certified Engineer" is awarded after completion of the four-year course of engineering studies at a Technological Educational Institute (TEI).

Perception

The perception of engineering varies across countries and continents. In the United States, continental western Europe, eastern Europe, Asia, the Middle East, Latin American and Canada engineering and engineers are held in very high esteem. The perception and definition of engineering in some English speaking countries is confused. The contemporary British public perceive engineers as skilled or semi skilled maintenance workers but this is a recent development. British school children in the 1950s were brought up with stirring tales of 'the Victorian Engineers', chief amongst whom were the Brunels, the Stephensons, Telford and their contemporaries but now British people often incorrectly use the term 'Engineer' to describe Plumbers and Mechanics. British Gas refer to their gas repair mechanics as registered "professional engineers". In Canada, a 2002 study by the Ontario Society of Professional Engineers revealed that engineers are the third most respected professionals behind doctors and pharmacists.[14] In the Indian subcontinent, Russia and China, engineering is one of the most sought after undergraduate courses, inviting thousands of applicants to show their ability in highly competitive entrance examinations. In Egypt, the educational system makes engineering the second-most-respected profession in the country (after medicine); engineering colleges at Egyptian universities require extremely high marks on the General Certificate of Secondary Education (Arabic: الثانوية العامة‎ al-Thānawiyyah al-`Āmmah)—on the order of 97 or 98%—and are thus considered (with colleges of medicine, natural science, and pharmacy) to be among the "pinnacle colleges" (كليات القمة kullīyāt al-qimmah).

The definition of what engineering is varies across countries. In the UK "engineering" is defined as an industry sector consisting of employers and employees loosely termed as "engineers" who range from semi skilled trades to chartered engineers. In the US and Canada, engineering is defined as a regulated profession whose practice and practitioners are licensed and governed by law. In some English speaking countries engineering has been seen as a somewhat dry, uninteresting field in popular culture and has also been thought to be the domain of nerds.[15] For example, the cartoon character Dilbert is an engineer. In science fiction, engineers are often portrayed as highly knowledgeable and respectable individuals who understand the overwhelming future technologies often portrayed in the genre. Several Star Trek characters are engineers. One difficulty in increasing public awareness of the profession is that average people, in the typical run of ordinary life, do not ever have any personal dealings with engineers, even though they benefit from their work every day. By contrast, it is common to visit a doctor at least once a year, the chartered accountant at tax time, and, occasionally, even a lawyer.

In companies and other organizations in some English-speaking countries (UK) there is a tendency to undervalue people with advanced technological and scientific skills compared to celebrities, fashion practitioners, entertainers and managers. In his book The Mythical Man-Month,[16] Fred Brooks Jr says that managers think of senior people as "too valuable" for technical tasks, and that management jobs carry higher prestige. He tells how some laboratories, such as Bell Labs, abolish all job titles to overcome this problem: a professional employee is a "member of the technical staff." IBM maintain a dual ladder of advancement; the corresponding managerial and technical rungs are equivalent. Brooks recommends that structures need to be changed; the boss must give a great deal of attention to keeping his managers and his technical people as interchangeable as their talents allow.

REWARDING FAILURE IN HIGH PLACES

2011-07-23T19:04:00.007-04:00

I may live to see an uprising over the widening gap between rich and poor in North America

After all, that's the cause of the regime change this year in North Africa and the Middle East.

Westerners have no less an acute sense of fairness than Tunisians and Egyptians. A few of us don't get the $9.7 million (Canadian) severance payoff for top managers at Rupert Murdoch's late, scandal ridden News of the World. And in particular the $3.9 million golden parachute for Rebekah Brooks, who oversaw that paper's regime of spying and police bribery, and was arrested this week over those alleged improprieties.

Meanwhile, the 200 or so front line NOTW employees laid off with the paper's closure will be fortunate to collect on their pensions. Their fate is akin to the 1,200 employees of call-centre operator IQT Solutions in Oshawa and Quebec abruptly laid off this week.

Declaring their firm bankrupt, the IQT owners hightailed it to parts unknown without giving the affected workers proper notice, their last paycheques, or accumulated vacation and severance pay.

That's how it goes for the little people. But you have to wonder how much longer the cancer of excessive CEO pay will remain socially sustainable.

At some point, some of us will awaken to the fact that many of our social ills - including the American economy's stubborn refusal to recover - can be traced back to a 30-year stagnation in middle-class incomes.

The economy, stock market and executive pay have all increased by several multiples in that time. But between 1976 and 2009, median income for Canadians rose just 5.5 per cent - median pay for Standard & Poor's 500 CEOs jumpecl 35 per cent last year alone, to $8.4 million (U.S.).

The economy, inflation, the stock market and dividend payouts to pension funds and other institutional investors did not increase that much.

Nor, between 2009 and 2010, did CEOs become 35 per cent smarter or harder-working.

Pay for the average U.S. worker actually fell last year, after inflation. Not accounting for inflation, it rose a meagre 0.5 per cent. Americans are bracing for a forecast additional six million home foreclosures, having suffered the loss of about two million homes already since the Great Recession began in 2007.

The household debt of Canadians now surpasses that of the US., where consumer indebtedness remains at levels too high to allow for the usual consumer-led recovery that follows recessions.

No, we didn't entirely lose our sense of prudence. As tuition, housing, gasoline, food and other costs rose over the past three decades while middle-class incomes stagnated, Canada and the US. first became nations of two income earners. And when that didn't suffice, we began borrowing for essentials.

"We are feeling the deferred pain of 25 years of excess, as people try to rebuild their depleted savings;' is New York Times economics editor David Leonhardt's explanation for the current consumer strike.

But that's not the whole story.

Many of us did not engage in "excess;' yet are struggling to make ends meet. The real story is: Where did all the money go that has been generated by a North American economy that has greatly expanded since 1980?

And the answer is to be found in decades of outsourcing, offshoring, declining union membership and bargaining power, and productivity gains that have enabled employers to generate ever more revenue with steadily fewer employees.

What grates in this transformation is the sense of entitlement among the sole, conspicuous CEO beneficiaries of our New-and- Not -Improved-Econom~

In the erosion of the "social contract" between capital and labour dating from the end of World War II, we are not suffering equally. Indeed, we now reward failure in high places.

The shares of General Electric Co. have plunged in value by 60.8 per cent during the tenure of CEO Jeffrey Immelt, who was rewarded for this performance with $37.2 million in free stock in 2010. Shares in pfizer Inc., the world's largest drugmaker, have dropped in value by 481 per cent over the past decade. Yet CEO Jeffrey Kinder retired in December clutching a $34.4-million severance package.

Rex Tillerson was paid $88 million in 2010, a year in which shares ofhis company, ExxonMobil Corp., generated a 5.8 per cent negative return.

Shares of banking giant J.P. MorganChase & Co. inched up in value by 3.5 per cent last year, good enough for a 1,474 per cent hike in CEO Jamie Dimon's pay, to $20.8 million.

For the approximately17 million North Americans who are unemployed, the economy has not recovered. But use of corporate jets has picked up by 6.2 per cent. And 24,666 oflast year's flights were to West Palm Beach, Nantucket and the Hamptons, not known as hives of business activity.

We need to have an adult conversation about income distribution before we're forced into an unruly one. For now, the occupant of the corner office isn't ready. Asked about Goldman Sachs Group Inc.'s role in helping put the match to the Great Recession, CEO Lloyd Blankfein snapped that he is "doing God's work!'

Jamie Dimon regards his bank's eviction notices as an act of altruism. "Giving debt relief to people that really need it, that's what foreclosure is."

And Stephen Schwarzman, chairman and co-founder of private equity giant Blackstone Group, who has a net worth of $8 billion, balked over a rumoured Obama administration increase in taxes on private equity firms from a loophole-engineered 15 per cent to the traditional 35 per cent.

''It's like when Hitler invaded Poland;' Schwarzman said of the barbarian at his gate.

Decrying "short - termism" as central to the US. economic malaise, Sheila Bair, outgoing head of the Federal Deposit Insurance Corp. (FDIC), noted the failure to accept responsibility among directors and management of failed banks, who had neglected their fiduciary duties.

"The rationales the executives come up with to try to escape accountability for their actions never cease to amaze me;' Bair wrote in a recent Washington Post op-ed. "They blame, the failure of their institutions on market forces, on 'deadbeat borrowers,' on regulators, on space aliens.They will reach for any excuse to avoid responsibility."

A dialogue of the deaf would be one thing, but we're not even talking about our greatest social ill, the maldistribution of income in North America

Well short of a revolution, this dangerous imbalance could easily be corrected simply by restoring the system of progressive taxation to where it was in the booming 1950s and 1960s.

That's when leadership meant responsibility, not a hurried grasp for the brass ring, with the little guy paying for the consequences.

That, history teaches us, is a lousy business plan.

David Olive,
Toronto Star
Business
July 23, 2011

.

ORGANIC GROWTH - "DO THE OPPOSITE" - RICHARD BRANSON - THE VIRGIN GROUP

2011-07-08T08:23:00.001-04:00

Do The Opposite

Business structures, models and cultures are being challenged by the crowd. Given the new world of transparency employees and customers are influencing market sentiment about any organization because of the fluidity of social media. These dynamics are forcing organizations to examine historical beliefs about what it takes today to run a successful business.

The very definition of “business structure, models and culture” is being redefined. These redefinitions eventually redefine how markets work and why they work. Thinking BIG is being replaced by thinking SMALL. The customer is no longer just a customer but instead a partner. Employees are no longer controlled and managed rather they are let loose to serve and do so in self managed groups. The office is no longer a physical address rather a virtual presence. Everything is changing and thus how we manage and what we believe must change.

The Opposite Works If Allowed

Richard Branson said: When my friends and I started the first Virgin business 40 years ago, we had no master plan – especially not one for a group of companies that by 2011 would number more than 400 businesses around the world and employ 50,000 people. Had we tried to plan for such a future, we would certainly have messed it up.

If there is a “right” way to develop your company’s culture, our experience shows that it should evolve organically. In 1970, my friends and I weren’t planning to do anything other than make some money and have a good time while doing something we loved. We loved listening to music, so we tried to sell records to other kids who wanted a fun place to hang out while deciding which ones to buy. We had no marketing plan or budget – our goals were simply to make enough money to pay the rent and our suppliers, and to have some cash left over at the end of the month.

Business owners often find it tough to learn how to handle success. When a business does well, many chief executives start to focus solely on increasing profits, no matter what the cost – leaving behind everything that originally made the business special. The founder usually moves to a big corner office on the top floor and never again sets foot in the factory. Employees who were integral to the company’s early success suddenly find they are the last to know what is happening, and their views are no longer valued or sought.

At Virgin, we have never had to struggle with the typical problems of big corporations, probably because we never really got big – we just diversified. Our growth was once described as “vertical disintegration” because our new businesses frequently appear to be tangential or even completely unrelated to our core mission. When Virgin was known for producing and selling records, for instance, we started up an airline.

If someone says, “That’s not the way a big company would do it,” take it as a compliment!

So future success is simple. Do The Opposite!

Jay Deragon

The Relationship Economy

July 8, 2011

THE DEMONS IN KRUGMANOMICS

2011-07-01T18:39:00.001-04:00

Nobel economist Paul Krugman is due to address the Economic Club of Toronto Wednesday on whether the United States has "mortgaged its future." If Mr. Krugman is true to form, he will tell his audience that it has not mortgaged its future enough. What is desperately needed is more government borrowing and spending.

Mr. Krugman is a Nobel-winning trade-policy academic economist who, over the past couple of decades, has gone increasingly to the liberal dark side, as evidenced in his columns in The New York Times. What seems to have driven him completely over the edge is a combination of Bush Derangement Syndrome and an evangelical desire to prove that Reaganomics was a failure. He criticizes Barack Obama for not going far enough. He hates Republicans with a passion and is Keynesian to the core. Thus he can only interpret the failure of government stimulus as evidence of "cowardice" or ''lack of political will."

Like most liberal moralists, Mr. Krugman demonizes his opponents as not merely wicked and/or stupid/and or venal, but also "furious" because he is so right and they are so wrong. On election night 2008, he and his even more uncompromisingly liberal wife, Robin Wells, who is also a Princeton economist, had a party at which effigies of their enemies were burned. Salem, anyone?

Mr. Krugman constantly concocts conspiracies of the rich to grind the faces of the poor. He calls anti-Keynesians "The Pain Caucus." He is currently lashed to the mast of not one but two sinking ships, the USS Keynes and the USS Draconian Climate Policy.

Modem American conservatism, he has written, "is, in large part, a movement shaped by billionaires and their bank accounts, and assured paycheques for the ideologically loyal are an important part of the system. Scientists willing to deny the existence of man-made climate change, economists willing to declare that tax cuts for the rich are essential to growth, strategic thinkers willing to provide rationales for wars of choice, lawyers willing to provide defences of torture, all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultra-wealthy families:'

Maybe he should check out what causes the Rockefeller, Carnegie, Pew, Hewlett and Packard foundations are actually promoting. It certainly isn't climate change denial.

Mr.Krugmarn's Nobel Prize for work in international trade and economic geography was widely praised. Early in his career he was a fan of markets and free trade, and attacked "popular" economists such as John Kenneth Galbraith,

Paul Krugman's,affection for markets fell as he became obsessed with in equality, market instability and catastrophic climate change

Lester Thurow and Robert Reich, who catered to economic misconceptions beneath a cloak of liberal good intentions. However, that cloak in the end proved too attractive not to try on.

Mr. Krugman's affection for markets has declined as he has become obsessed with inequality, market instability and catastrophic climate change, He doesn't think consumers can be trusted to make the "right" choices any more, and has taken to the remarkably annoying habit of condemning free marketers as people who believe that people are always rational and markets perfect. Then again, straw men are easy to torch.

Mr. Krugman's take on the ongoing crisis is remarkable not merely for wishing to keep doing more of what has failed, but his blindness to the role of government policy in its creation. Fannie and Freddie? Mere bystanders who only decided to help blow up the system ''late in the game." Greece? It's all the euro's fault.

Anthropogenic global warming has become an article of religious faith for Mr. Krugman, which has required him to go through astonishing convolutions in the face of growing evidence of corruption. Climategate? A "fake scandal." Remember those emails about a "trick" to "hide the decline"? According to Mr. Krugman this was an "anomalous decline." Well, no. The decline was in actual temperature readings which failed to concur with the proxy data from tree rings. These had to be ''hidden'' because tree ring data were essential to the credibility of the poster child ''hockey stick" graph that presented the twentieth century as a thousand year anomaly. The decline had to be hidden because it exposed fake science,

The former free trader now thinks that carbon tariffs might not be such a bad idea, and since cap and trade represents an alleged "market solution" to the catastrophe-to-come, the conservatives who (successfully) opposed it are, in Mr. Krugman's view, hypocrites.

Mr. Krugman leans towards the global salvationist posturing of Lord Stern, whose climate review is a monument to perverted cost-benefit analysis. "Stern's moral argument for loving unborn generations as we love ourselves may be too strong;' Mr. Krugman has written, ''but there's a compelling case to be made that public policy should take a much longer view than private markets:'

The problem is that it doesn't.

The evil of Mr. Krugman's opponents is all embracing. He has written that
"[T]hose who insist that Ben Bernanke has blood on his hands tend to be more or less the same people who insist that the scientific consensus on climate reflects a vast leftist conspiracy." You see the connection? Leaving aside the blood libel, if you oppose further corruption of the monetary system you are clearly also a climate denier. And why doesn't America have universal public health care? Simple, it's due to "The legacy of slavery, America's original sin."

Once Mr. Krugman's intellectual inspiration was Adam Smith. Now it's Naomi Klein.

Peter Foster
Financial Pst
FP Comment
June 29, 2011

'INVESTING SHOULD BE BORING" - IF YOU WANT EXCITEMENT, GO TO LAS VEGAS

2011-07-01T12:46:00.002-04:00

Successful investing should be boring, which may explain why so many excitement-seeking investors suffer disappointing returns.

If you want excitement, go to Las Vegas.

If you want to be a rich crashing bore, read a little book self-published by
Edmonton-based wealth counsellor Marshall McAlister. It's titled The Brilliance of Boring Investing: An Academic Approach to Portfolio Design.

It begins with a quote from Nobel laureate Paul Samuelson: "Investing should be dull. It shouldn't be exciting." But there's a paradox, writes MeAlister: The portfolio process that requires less work from
investors can actually deliver the best long-term investment returns.

Boring doesn't mean lazy, he hastens to add. It requires discipline and a process, which is the true value of what financial advisors provide.

The kind of advisors I often meet at conferences sponsored by index fund maker DFA Canada, which is where I met McAlister last week.

The featured speaker at the Toronto event was prolific U.S. author and money manager Larry Swedroe, who views investing very much like McAlister and DFA. St. Louis-based Buckingham Asset Management (BAM) is one of DFA's largest clients.

Swedroe's talk focused on his recently published The Quest for Alpha: The Holy Grail of Investing. "Alpha" refers to the goal of "adding value" by security selection, relative to "beta" or market returns delivered by index funds or ETFs.

I'm surprised he didn't title it The Futile Quest for Alpha since that's the book's main thrust. Like McAlister, he believes timing the market is impossible, forecasts are for the gullible, and stock-picking is a mug's game,

Both advocate the "boring" route of low-cost "asset class" investing, which means creating portfolios built on low - cost index mutual funds (like DFA's, tilted in favour of value and small-cap stocks) or enhanced or fundamental-index based exchange-traded funds.

Swedroe says there are two main theories about markets:

the conventional wisdom that they are inefficient so can be "beaten" versus modern portfolio theory's belief that markets are efficient and stocks priced roughly where they should be.

If markets are inefficient, the winning strategy would be to identify past "persistent alpha" and select managers with proven ability to add value through market timing and security selection.

Swedroe demolishes that school by reviewing the poor track records of actively managed mutual funds and venture-capital managers. Hedge funds are worse, he says, because they are illiquid, tax inefficient, lack transparency and offer no persistent outperformance beyond what might be randomly expected. The result is risk-adjusted returns similar to treasury bills.

But his most telling argument involves pension plans. If anything could beat the market, it should be them, since they pay lower fees than retail investors, use the world's top managers and hire gatekeepers to monitor and replace managers if performance lags.

Sadly, all their activity has been for naught: They'd be better off imitating Rip Van Winkle and doing nothing. Swedroe concludes markets are indeed efficient, so efforts to "beat" it are futile after fees, trading costs and tax drag,

Therefore, the winning strategy is the "boring" one of focusing on low-cost fund construction and tax-efficiency, tuning out the noise and sticking to a long-term plan.

Not everyone believes alpha fails to add value. "It is difficult for most investors, amateur or professional, to consistently produce alpha," concedes Bob Cable, director of ScotiaMcLeod's The Cable Group. But while difficult, it's not impossible. One way is to take advantage of seasonal patterns (such as "sell in May and go away"), a strategy Cable says is particularly pronounced in the Canadian market.

Both authors endorse the 'boring' route

Jonathan Chevreau,
Financial Post
June 29, 2011

LESSONS ON LONGEVITY, FROM I.B.M.

2011-06-26T15:01:00.005-04:00

Even Apple will be forced to adapt as its designs are copied.

At 100, I.B.M. looks remarkably spry.

Consumer technologies get all the attention these days, but I.B.M. has thrived by selling to corporations and governments. Profits are strong, its portfolio of products and services looks robust, its shares are near a record high. Its stock market value passed Google's this year. Yet, in the early 1990s, I.B.M.'s survival was at stake. It nearly ran out of money. Its mainframe business was reeling under pressure from the lower cost technology of personal computing.

"I.B.M. faced the challenge that all great companies do sooner or later - they dominate, they lose it, and then they recreate themselves or not," says George F. Colony, the chief executive of Forrester Research, a technology and market research company .

I.B.M. moved beyond the mainframe and built a business increasingly based on software and services. And the company holds lessons for others.

Evolving beyond past success is a daunting task for all companies. But that problem is magnified in the technology arena, where companies can quickly rise to rule a market, until a technology shift opens the door to a new generation of corporate dynamos.

That is the test facing Microsoft, Google and Apple. So, what broader insights are to be drawn from the I.B.M. experience?

One central message, according to industryexperts: Don't walk away from your past. Build on it. The crucial building blocks, they say, are skills, technology and marketing assets that can be transferred or modified to pursue new opportunities. Those are a company's core assets, they say, far more so than any product or service.

I.B.M.'s prime assets included strong, long-term customer relationships, deep scientific and research capabilities, and an unmatched breadth of technical skills in hardware, software and services.

It is the technology surrounding the mainframe that pays off for I.B.M. to-
day. Mainframe hardware alone accounts for less than 4 percent of its revenue. But when the software, storage and services contracts linked to mainframe computers are included, the figure rises to 25 percent - and as much as 45 percent of operating profit, estimates A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company, a global wealth management firm.

I.B.M. has refocused its research labs and sales force on services and software. From running smart-grid projects for utilities to traffic-management systems for cities, I.B.M. acts as a general contractor whose expertise spans research, software, hardware and services. These projects build on its legacy of broad technical skills and deep knowledge in fields like energy, transportation and health care.

Unlike I.B.M. in the early 1990s, Microsoft is not a company in crisis. It is growing and is immensely profitable. It has nurtured new businesses beyond its lucrative stronghold in personal computer software: the Windows operating system and its Office programs.

Today, Microsoft's server software division is comfortably profitable, with
$16 billion a year in revenue.

Its other. sizable business is its Xbox video-game console, soft¬ware and online gaming franchise. That division is an $8 billion-a-year business.

But the long-term problem for Microsoft is that more than 80 percent of its operating profit still comes from its PC software franchise, which has kept the company's stock price stagnant for years. And the company lags in fast-growing new markets in search and online advertising, as well as smartphone and tablet software. Some big investors are uneasy - and one, David Einhorn, the hedge fund manager, in May publicly called for Microsoft's chief executive to be replaced.

Microsoft has deep technical and research expertise. Kinect, its add-on device to the Xbox gaming console, suggests promise. It recognizes faces, gestures and voice commands.

Kinect (at $150) is for gaming, yet personal computers that can see you, hear you and respond would be a breakthrough, bringing artificial intelligence into the mainstream.

Google has the purest engineering culture among the major technology firms. And the assets most prized at the company are brains and data.

"Google is all about information - searching, discovering and sharing information more intelligently," says Peter Sondergaard, senior vice president for research at Gartner, a technology research company.

Google sees itself as an artificialintelligence factory. Its programmers mine vast troves of Web data to deliver smarter search results and more finely directed ads. Its offerings beyond search all scoop up more data and afford potential opportunities for serving up more ads. They include online e-mail, calendars, maps, shopping, word processing and spreadsheets, as well as videos on its YouTube service and photographs on Picasa.

Google is also moving into the realm of software for devices, as more searches are being started from these mobile devices. Yet the move could also put it in a powerful position to shape the future of mobile devices, which are eclipsing PCs in computing. In smartphones, at least, Google is doing well. Android, which Google distributes free, has rapidly become the leader for smartphone operating systems, with 36 percent of the market.

Apple, meanwhile, has been unmatched in applying its core assets to new markets. Its hallmark skills are the intuitive usability of its software and the inspired design of its hardware.

Yet Apple machines are still dwarfed by those running Microsoft's Windows. Apple's stunning success has come in taking its skills beyond PCs with new designs in markets that it has redefined or created: digital media players (the iPod), smartphones (iPhone), tablet computers (ipad).

Yet Apple's impressive product designs will eventually be mimicked and come under price pressure, just as LB.M.'s mainframe did, predicts Michael A. Cusumano, professor at the Sloan School of Management at the Massachusetts Institute of Technology. Apple, he suggests, can build a large business around its new iCloud online storage and syncing service.

I.B.M.'s story also holds a cautionary lesson: the danger of delay,.... David B. Yoffie of Harvard BusIness School recalls that in 1990, I.B.M. executives spoke of the need to wean the company from its dependence on mainframes and to shift to software and services.

I.B.M., he notes, didn't pursue that strategy until after the company was in peril. "It's really hard," he said, "to move a company when it's doing well and not facing a crisis."

Steve Lohr,
The New York Times,
Toronto Star
June 26, 2011

CONRAD BLACK - A PLEA TO THE JUDGE - AT RESENTENCING

2011-06-25T14:21:00.002-04:00

'I never ask for Mercy'

The statement Conrad Black delivered to Judge Amy St. Eve at his resentencing hearing in Chicago on Friday June 24, 2011

On the occasion corresponding to this four years ago, the fact that the counts that had survived the trial were under appeal spoke for itself, and I didn't think it appropriate to say much more. As we are now back, one last time, in your court, at the weary end of this very long and fiercely contested proceeding, there are a few things that I think should be said.

The prosecutors have never ceased to accuse me of being defiant of the law, of disrespecting the courts, and of being an antagonistic critic of the American justice system. Nothing could be further from the truth. I have obeyed every order of this and other courts, every requirement of the United States Probation Office, in this and other cities, and while I was its guest, every rule and regulation of the BOP, no matter how authoritarian. I have been and remain completely and unwaveringly submissive to legal authority, yours in particular.

What I have done is exercise my absolute right to legal self-defence, a right guaranteed to everyone who is drawn into the court system of this and every other civilized country. All my adult life I have been a member of the moderate section of what is commonly called the law and order community, and I shall remain in it, whatever sentence you impose on me today. I always keep a firewall between my own travails and my perception of public policy issues; otherwise I would retain no credibility as a commentator.

Your Honour, many years ago when I was a student and licensee in law in Quebec, I read a large number of cases from British and French courts, including the principle established by the eminent British jurist, Lord Denning, that "Parties coming to court must be prepared to practise what they are asking the court to approve." The prosecutors have never ceased in this case to advocate respect for the law, and to accuse me of lacking it.

But since that is an unfounded complaint, the real source of their irritation must be that as chief defendant, I have led the destruction of most of their case, and have successfully protested my innocence of charges of which I have, in fact, been found not to have been guilty. I understand their disconcertion that of the 17 counts they originally threatened or actually launched against me, all were either not proceeded with, abandoned, rejected by the jurors or vacated by a unanimous Supreme Court of the United States. But the problem is not my lawlessness; it is the weakness of their case. I have done nothing but uphold and respect the rule of law and the system of justice, in which my faith has never flagged.

This entire prosecution and a number of civil suits as well, were based on the report of the Special Committee of the board of Hollinger International, directed by its counsel, Richard Breeden, and published in September 2004. That report accused me of having led a "$500-million corporate kleptocracy." The non-competition payments almost entirely legitimized in this case were described as "thefts." And the authors of the report promised to lead the company back to unheard of levels of profitability. They did but not in the direction indicated. I launched the largest libel suit in Canadian history against Breeden and the others responsible for writing and publishing this infamous report.

My libel suit, and several other lawsuits around this case, are being settled, including a sizeable payment to me on the libel claim. This is the ultimate collapse of the Breeden Special Committee report, whatever other interpretation the defendants in the case may, consistent with their notions of accuracy throughout these proceedings, seek to place on it.

The authors of the report were not prepared to defend it where they would not have an immunity for perjury as most of the government witnesses did here. Nor were they prepared to defend their selfdirected largesse of $300-million, as they drove the company into bankruptcy, taking down $2-billion of shareholder value with it.

Over 80% of that value belonged to ordinary people throughout the U.S. and Canada, the type of people Mr. Cramer spoke about at the opening of the trial when he likened us to masked and violent bank robbers who stole depositors' money at gunpoint, because we had supposedly rifled the shareholders' family college funds. And Breeden's original action of January 2004, containing the false charge that I had threatened the Special Committee, repeated just last month by the government in its presentence filings on May 27, has also been abandoned.

Mark Twain famously said that "A lie gets halfway round the world before the truth gets its trousers on." It is very late in this case, Your Honour, but the truth has almost caught up with the original allegations.

I have at times expressed concern about the ethics of some of the prosecutors in this case, Your Honour, but never of the role of prosecutors, or of the necessity to convict criminals and protect society. But I must emphasize that I consider that the prosecutors, too, are victims. If they had not believed Breeden's lies, now effectively abandoned in the face of my libel suit, the U.S. Attorney would surely not have launched such a fantastic assault on us.

And I can assure the assistant U.S. attorney that I did not say on Canadian television that I was like the person checking his own expense account. I said that for the appellate panel that had been excoriated by Madame Justice Ginsburg on behalf of a unanimous Supreme Court, when assigned the task of assessing the gravity of its own errors, to resurrect these two counts after a gymnastic distortion, suppression and fabrication of evidence, was like someone reviewing his own expense account.

Your Honour, these are, in any case, very threadbare counts. Is it really conceivable to you that if I were inexplicably seized with the ambition to embezzle $285,000, I would have it ratified by a committee and then, after what the minutes of the meeting described as "extensive discussion," by the whole board? I would have to have been mad.

And obstruction: It is clear from the evidence that I had nothing to do with selecting or packing the contents of the boxes, had no knowledge of any SEC interest in them after complying with five of its subpoenas, and after being assured by Mrs. Maida that it did not violate the Canadian document retention order, and checking with the acting president of the company, whose letter you have, I helped to carry out the boxes under the gaze of security cameras that I had installed. When these boxes arrived here, they were very full, so if I had taken anything out of them, why would I not have put them at any time over many weeks in my pockets or a brief case? Your Honour, again, to remove documents improperly in this way, I would have had to be barking, raving mad, and insanity is almost the only failing of which the prosecutors have not accused me.

I would like to express here my gratitude to you, Your Honour, for sending me to a prison with email access, where I was able to stay in touch with supporters and with readers of my newspaper and magazine columns. And I must also express my gratitude to the originally small but distinguished and often intellectually brave group of friends, but also of total strangers, who never believed I was guilty, when that was a less fashionable position than it has become. Their numbers grew to be an army that now includes many people in every American state and Canadian province, and region of the United Kingdom, and people in many other countries.

And my gratitude to the many friends I made, inmates and correctional personnel, at the Coleman Low Security Prison, whom I shall not forget, is beyond my ability to express today.

I am of the tradition that tends not to speak publicly of personal matters, but Your Honour, I hope it is acceptable to you if I vary that practice slightly, and briefly, in concluding, today. As you would know, or could surmise from many letters that have been sent to you qualified to comment, and as is mentioned in the presentencing submissions, I believe in the confession and repentance of misconduct and in the punishment of crime. I don't believe in false or opportunistic confessions.

It is not the case, as has been endlessly alleged by the prosecutors, that I have no remorse. I regret that my skepticism about corporate governance zealotry, though it was objectively correct and has been demonstrated to have been so in the destruction of these companies, became so identified with the companies themselves that the shareholders all suffered from it.

I regret that I was too trusting of the honesty of one associate and the thoroughness of some others, and the buck has stopped with me. I repent those and other tactical errors and mistakes of attitude, Your Honour, and I do not resent paying for those errors, because it is right, and in any case inevitable, that people should pay for their mistakes.

I concluded many years ago in my brief stint as a candidate psychoanalyst that it is practically impossible to repress conscientious remorse. And I concluded some years later in reading some of the works of the recently beatified Cardinal Newman, that our consciences are a divine impulse speaking within us, as Newman wrote, "powerful, peremptory and definitive." My conscience functions like that of other people, and I respond to it, if not precisely as my accusers would wish. But they are prosecutors, not custodians of the consciences of those whom they accuse.

Your Honour, please do not doubt that even though I don't much speak of it, my family and I have suffered deeply from the onslaught of these eight years. I agree with the late pope who said "Life is cruciform." All people suffer. It is a stern message, but need not be a grim one. We rarely know why we suffer, and only those who have faith even believe there is a reason. No one can plausibly explain in moral terms a natural disaster, or a personal tragedy. I see life as a privilege and almost all challenges as opportunities, and have always tried to take success like a gentleman, and disappointment like a man.

Whatever the reason my family and I have had to endure this ordeal, for our purposes today, in these personal questions, I only ask that you take into account the messages you have received about collateral medical problems in my family. I do not worry about myself, and I will not speak further in open court of the worries I do have for my family. But I most earnestly request, Your Honour, as someone who has shown and expressed family sensibilities several times in this case, that they too be taken into account in your sentence.

And I believe that even if a reasonable person still concludes that I am guilty of these two surviving, resurrected, counts, tortuously arrived at and threadbare though their evidentiary basis now is, that the same reasonable person would conclude that I have been adequately punished. I only ask you to recall the criterion you eloquently invoked near the end of the trial that the justice system not be brought into disrepute by an unjust sentence.

I conclude by quoting parts of a famous poem by Kipling, with which I'm sure many in the court are familiar, and which I had known too, but not as well as I knew it after it was sent to me by well-wishers from every continent except Antarctica. And to the extent I was able, I tried to keep in mind throughout these difficult years, what Kipling wrote, which was, in part and as memory serves:

If you can keep your head while all about you are losing theirs and blaming it on you, If you can trust your own counsel though all men doubt you, but make allowance for their doubting too, If you wait but are not tired of waiting, Are lied about, but don't deal in lies, If some men hate you but you don't stoop to hating; And don't look too good or talk too wise; If you can talk but don't make words your master, Can think but don't make thoughts your aim, If you can meet with triumph and disaster, But treat both those imposters just the same.

And I address this directly to the prosecutors and some of the media:

If you can bear to hear the truths you've spoken, Twisted by knaves to make a trap for fools, And see the work you gave your life to broken, And stoop to fix it up with worn-out tools.

If you can make a pile of all your winnings, And risk it on a turn of pitch and toss, And lose and start again at your beginning, And never say a word about your loss.

And Kipling goes on to say that the reader will then be a man. Your Honour, when I first appeared in your court six years ago and you asked me my age, it was 61. If I'm not a man now, I never will be.

I never ask for mercy and seek no one's sympathy. I would never, as was once needlessly feared in this court, be a fugitive from justice in this country, only a seeker of it. It is now too late to ask for justice. But with undimmed respect for this country, this court, and if I may say so, for you personally, I do ask you now to avoid injustice, which it is now in your gift alone to do. I apologize for the length of my remarks, and thank you, for hearing me out, Your Honour.

Nattional Post
June 24, 2011

THE RISE OF GENERATION C - THE IMPLICATIONS FOR THE WORLD OF 2020 - BOOZ & COMPANY

2011-06-18T07:44:00.003-04:00

Executive Summary

In the course of the next 10 years, a new generation,
Generation C—will emerge.

Born after 1990, these “digital natives,” just now beginning to attend university and enter the workforce, will transform the world as we know it.

Their interests will help drive massive change in how people around the world socialize, work, and live their passions—and in the information and communication technologies they use to do so.

Read more

http://www.booz.com/global/home/what_we_think/reports_and_white_papers/ic-display/47812404

KIDS STUFF - WHAT HR AND PENSION PROFESSIONALS CAN LEARN FROM GENERATION C

2011-06-18T05:42:00.004-04:00

The following is taken from Henry H. Tapper's Blog

henry tapper
June 18, 2011

Driving home from football with Olly last night – we turned on the radio -”what’s that crazy music” I mumbled to myself

“James Brown , Payback Dad – it’s 8 minutes long – do you want to buy it?”

“How do you know that Olly?”

“I’ve got an app”

Get home, turn on the computer - there’s a mail from my friend Matthew who’s out in San Francisco. Turns out he’s written a paper on Generation C. This is how it starts.

"In the course of the next 10 years, a new generation—Generation C—will emerge. Born after 1990, these “digital natives,” just now beginning to attend university and enter the work-force, will transform the world as we know it. Their interests will help drive massive change in how people around the world socialize, work, and live their passions—and in the information and communication technologies they use to do so."

Having owned digital devices all their lives, they are intimately familiar with them and use them as much as six hours a day. They all have mobile phones and constantly send text messages. More than 95 percent of them have computers, and more than half use instant messaging to communicate, have Facebook pages, and watch videos on YouTube.

If you want a copy of this paper, you can download the PDF here - Booz & Co is a management consultancy not an off licence .

Matthew and Booz’s point is that kids like Olly will inhabit not just the real world of football and school and college and work but a “cloud world” where he and 2-300 of his associates will hang out in a state of almost constant connectivity.

I say “will” though I think this has already happened for my son. He’s had an iPhone for nearly a year, he runs countless Facebook campaigns. As Head of the School Council he canvasses opinions on what his schoolmates want for dinner, timetable changes – even teacher performance.

He can speak authoritatively on how he and his friends feel about certain songs, videos, films simply by posting a question via Facebook.

We (I mean the HR and pension professionals who I work with) say we want to communicate with our staff – tell them stuff about pensions, get their views on HR matters, understand where we as business managers are going right or wrong.

We will be competing for their interest with a whole bunch of others trying to get some space on their cloud.

That’s why I think that “education” is the wrong word - we don’t educate kids like Olly, they educate themselves. All we can do is try to get the things we feel important in their line of sight.

In the battle to catch their attention we need to go to school to learn about search engines and how to do this.

My reply:

Hi Henry,

I fully agree with your observations.

I don’t know what they call the generation born in 2004 but my 7 year old grandson has me in a state of awe when I observe him manipulating 3 – 4 digital pieces of software simultaneously.

My own professional view in the field of finance of the implications of your points is this.

In the delivery of complex knowledge and information in any discipline those professionals who communicate collaboratively in real time will ‘win’ i.e. gain a clear exponentially competitive advantage in their marketplace and those who do not will ‘lose’.

The accumulation of intellectual capital within a knowledge based enterprise differs from that of one which produces disposable or replaceable commodities. To increase this form of HR capital exponentially there must be ongoing real time collaboratively genuine interactive communication in any such enterprise. The supply of such behaviour is generally inadequate, in my opinion. It requires a temperament which I refer to as that which is demonstrated by ‘net givers’ (vs. ‘net takers’.) Your blog is a great example of this attribute.

Thank you for your thoughtful articles.

I would very much appreciate receiving a copy of the Booz & Co. paper.

Kindest regards.

Dan.

Daniel H. Zwicker

B.Sc. (Hons.) P. Eng. CFP CLU CH.F.C. CFSB

Certified Financial Planner

Chartered Life Underwriter

Chartered Financial Consultant

Chartered Financial Services Broker

Professional Engineers Ontario

Investor Consultants

Capital Risk Management

Bus: 416-726-2427

Email: LinkedinDanZwicker@rogers.com

Linkedin: http://www.linkedin.com/in/danzwicker

Blog: http://www.dzwicker.blogspot.com

STORMY SKIES FOR CANADA'S MIDDLE CLASS

2011-06-17T12:43:00.000-04:00

The Canadian middle class is in crisis. Each year, its share of our national income shrinks, relative to that of the richest few. Recent reports show Canada’s wealthiest one per cent accounted for 32 per cent of all income growth between 1997 and 2007 – the most in recorded history. Thanks to skyrocketing executive compensation levels and an aggressive attack on well-paid, family-supporting jobs, the gap between the rich and the rest of us grows ever wider.

Nothing epitomizes this situation more than the recent history of Air Canada. In the last decade, Canada's national carrier has suffered unprecedented financial turbulence, including run-ins with bankruptcy protection. According to the Canadian Auto Workers’ internal research, over the same period Air Canada's CEO at the time, Robert Milton, pocketed $86 million – while thousands of front-line employees were forced to take cuts, to the tune of about $10,000 per year, including an erosion of real wages, lost vacation, paid lunch breaks and other benefits.

Air Canada workers made major sacrifices. The company plowed ahead with plans to do more with less. Work intensified and productivity skyrocketed. Measured in seat miles delivered per employee, labour productivity at Air Canada jumped 75 per cent. Yet many who had earned a good (albeit modest) salary saw their quality of life and working conditions decline.

This storyline has played out in too many workplaces across Canada. “Good” jobs are on the wane, in all sectors – whether in factories, service shops, office buildings, or among the professional classes. Many have come to accept the logic that jobs in the “new economy” are inherently insecure. Pension plans exist only in fairy tales, and personal sacrifice has become the new norm. We accept the mantra that the next generation of workers will be worse off, and assume they simply aren’t in a position to demand better.

This attitude must change – for everyone’s benefit. The squeezing out of Canada’s middle class has major implications for our collective prosperity. Middle-class incomes drive economic growth, pay for public services, support healthy families, and build communities. Society cannot subsist on crumbs left over by the rich. Workers cannot accept the logic that relentless cuts and constant sacrifice will bring better days ahead.

Air Canada employees have already drawn a line in the sand during their current contract talks. They’ve resolved to make up ground on lost wages. They’ve rejected a program of two-tiering, which would make second-class workers of future generations. And in a recent show of solidarity, the CAW, the Canadian Union of Public Employees, and the International Association of Machinists and Aerospace Workers (three unions representing the lion’s share of Air Canada employees) rejected a company proposal to undercut and eventually eliminate the current defined benefit pension plan. By saying “no” to these demands, Air Canada employees are facing down the corporate-led riptide that’s pushing Canada’s middle class to the brink.

With the company’s return to profitability in 2010 and a brighter future on the horizon, Air Canada’s demands for more cuts, fewer full-time jobs, and outsourcing appear baseless. It’s made worse by CEO Calin Rovinescu’s hefty 76 per cent pay hike that landed him $4.55 million in compensation last year, a defined benefit pension that would pay him $351,000 per year at age 65, and a $5 million retention bonus he would be paid just for staying on the job until March 2012. His insistence that workers accept less reeks of hypocrisy.

Not surprisingly, the frustration and anger among Air Canada employees is reaching a breaking point. Demonstrations have been taking place in communities across Canada, with impressive turnouts. CAW members recently voted 98 per cent in favour of strike action, as a last resort. They know that what’s at stake in these negotiations goes far beyond their own self-interest.

Air Canada is recognized as a world-class carrier and has received dozens of awards for quality service, largely because of its hard-working employees. It’s time they receive their fair share.

The Air Canada battle is a principled fight about fairness and justice. It’s about reclaiming workers’ rights to good jobs, as well as our collective ability to demand better from employers and government. It’s about closing that ever-widening wealth gap and strengthening the middle class, for all Canadians.

Ken Lewenza

The Mark News
Sat, 11 Jun, 2011

BACK TO OUR FUTURE - THE HUMAN NETWORK

2011-06-17T02:54:00.001-04:00

The genie is out of the bottle and there is no going back. Every day with every new technological evolution in mobile communication, internet availability, broadband accessibility, the speed of life seems to move incrementally into warp drive. In a paper written in 1968 by Internet pioneers J. C. R. Licklider and Bob Taylor, called “The Computer as a Communication Device.” they envisioned the time when real-time interactivity was possible.

They expected an acceleration of our abilities to innovate and work creatively. That time is now. Internet technologies have opened up new frontiers of communicative methods and techniques enabling user-generated content, creativity and shared documents resulting in an explosion of possibilities, which never existed previously.

The Relationship Economy is a knowledge-based economy without borders, where the race is between companies and locales over how to learn faster and organize more flexibly to take advantage of technology-enabled market opportunities (Kelly, 1998; Best, 2001). Within this Relationship Economy, the World Wide Web is ubiquitous. It has transformed geographically separated locales into a “global village” for information sharing, social interaction, and economic exchange.

Technology, in particular, ever-expanding digital bandwidth, has resulted in the creation of new-economy forms of intangible, knowledge-based capital, the value of which now exceeds that of the physical capital that once dominated old economies (Castells, 2000; Tapscott, et al., 2000). (1)

In a culture which some have described as information overload, it is impossible for any one of us to hold all of the relevant pieces of information in our heads at the same time. Because there is more information out there on any given topic than we can store in our heads, there is an added incentive for us to talk amongst ourselves about the media we consume. This conversation creates buzz and accelerates the circulation of media content. Consumption has become a collective process and that is what is meant by collective intelligence. None of us can know everything; each of us knows something; we can put the pieces together if we pool our resources and combine our skills…. Collective intelligence can be seen as an alternative source of media power. We are learning how to use that power through our day-to-day interactions within convergence culture.

Right now, we are mostly using collective power through our recreational life, but it has implications at all levels of our culture. Jenkins book explains the cultural shift that is occurring as consumers fight for control across disparate channels, changing the way we do business, elect our leaders, and educate our children.

To quote Victor Hugo, “You can resist an invading army, but you cannot resist an idea whose time has come.”

Conclusion

The medium of social networking accelerates human interaction across all divides and faster than any time in the history of mankind. These interactions are creating exchanges of thoughts, ideas and emotions. One can expect that this acceleration of exchanges will introduce new dynamics of creativity, connectivity and possibilities never before anticipated, experienced or expected.

The Relationship Economy taps into the collective ability of the human thought, emotion and spirit. These three elements of human possibility leveraged by the medium of social networking technology makes everything previously envisioned as impossible possible. The Relationship Economy provides a pathway to abundance with no boundaries, no limits and beyond today’s comprehension and definition of any other form in the history of our existence. A new era has been born, the human network and it enables individuals to maximize thoughts, emotions and the human spirit to a universe of possibilities.

Jay Deragon
The Relationship Economy
06/15/2011

WHAT KEEPS WALL STREET MISCREANTS OUT OF JAIL?

2011-06-11T13:54:00.007-04:00

TROUBLE IS, GREED AND STUPIDITY AREN'T ILLEGAL

Why isn't Wall Street in jail? Thirty-two months after the ceiling caved in on the global financial industry, triggering the worst economic crisis since the Great Depression, criminal charges have not been brought against a single financier or institution culpable in capitalism's biggest failure since the 1930s.

Martha Stewart went to jail for obstruction of justice connected with a $45,673 (U.s.) stock sale.

Newspaper magnate Conrad Black was incarcerated for looting his firm of $6 million.

Lindsay Lohan was imprisoned for violating parole on a DUI con¬viction.

Yet not one of the Wall Street perps in the most severe economic crisis in the memory of most people alive today has been led away in an orange jumpsuit

The avarice and disregard for risk that knew no bounds among Wall Street's top managers will cause the U.S. banking system to lose a forecast $744 billion before the crisis ends.' Taxpayers were forced to spend $700 billion to inject capital into failing banks to prevent a total collapse of the system, and the onset of a second Great Depression, with unemployment of 25 per cent to 30 per cent compared with the current, painful enough 91 per cent million Americans and 400,000 Canadians lost their jobs in the Great Recession. An estimated 50 million American homeowners have been foreclosed upon or are cllnging to houses that continue to plummet in price, far below their mortgage value.

The US. national debt has swollen by $3 trillion to stabilize the US. economy.

Shouldn't someone go to jail for that?

After all, the last wave of white collar crime ended with prison sentences for the highest-ranking executives at Enron Corp., World¬Com Inc., Tyco International Inc" and Adelphia Communications Inc., and other miscreants.

To argue, as a few brave experts have done recently, that the rampant greed and ineptitude that caused a record US. housing bubble was not criminal behaviour is to invite retorts like this one from Barry Ritholtz, the leading US. independent economics blogger:

"By that logic, O.J. didn't kill Nicole Simpson and Ronald Goldman" Ritholtz says.

But those brave souls deserve a hearing. Their argument is persua¬sive. The crisis, financial author Roger Lowenstein wrote recently in a controversial Bloomberg Businessweek story, was caused "by a speculative bubble in mortgages, in which bankers, (mortgage) applicants, investors, and regulators were all blind to risk"

And weak regulation, to my mind the leading culprit, was "a product of the discredited but entrenched thesis that markets are efficient and self-policing."

Ifs true that in periods of irrational exuberance, financiers always have become dangerously sanguine about risk, and intensified their search for regulatory loopholes to exploit. None of which is illegal.

"One of the most galling aspects of the financial crisis is that so much of the behaviour that precipitated it was explicitly legal:' writes Salon financial analyst Andrew Leonard (Leonard's emphasis.) "The crooks rigged the system so that they weren't, technically speaking, crooks!'

As to regulations and the public guardians entrusted with enforcing them, "For decades, both Republican and Democratic administrations steered financial sector policy in a deregulatory direction that all but guaranteed an eventual crash!'

In Canada's most recent real estate bubble, which burst in the early1990s, Ottawa told Canadian lenders to rein in their lending before a growing problem with loan losses could escalate into a crisis requiring a government bailout of Bay Street.

Conversely, a US. regulatory apparatus in thrall to the "discredited" thesis that markets self-correct did not act until a crisis was underway. The US. Federal Reserve Board, the US. Securities and Exchange Commission and other supposed watchdogs read too little into warning signs of an unsustainable housing boom that were evident as early as the mid-2000s.

Armchair prosecutors who've lost jobs and homes or know friends and family members in dire straits are outraged at the absence of criminal charges and the banks' use of bailout funds to pay exec¬utive bonuses and dividends while refusing to lend to job-creating enterprises.

But it must be said that putting Bernie Ebbers and Jeff Skilling behind bars didn't prevent a far more devastating outbreak of corporate malfeasance that began in the early 2000s, just as the last bunch of corporate malefactors was being sentenced So much for the deterrent value of jail time.

What's required, as in the aftemath of the Crash of1929, are sweeping reforms.

• The dangerous US. banking debt -to-capital ratio of 30 to 1 needs be brought in line with Canada's 18 to 1 ratio, providing a sufficient cushion for loan losses.

• America needs to scrap mortgage-interest tax deductibility, a $100-billion annual middle-class tax break that spurs US. overco sumption of housing. That alon would cut the US. deficit by 7 cent a year.

• The divorce of traditional commercial banking from riskier in" vestment banking imposed by FDR in response to the Crash 1929 was followed by generati, of financial-markets stability. 1999 revocation of that law soon followed by the unp ed US. housing bubble, in which the new Wall Street "megabanks" packaged subprime, or junk. mortgages into "securitized" then sold for fat upfront fees to other banks, pension funds and university endowments worldwide.

That separation needs to be reimposed, with investment bank clients deprived of the safety net of federal deposit insurance.

• Lavish Wall Street pay should be tied to prudent capital ratios to discourage high-risk behaviour. And outlandish compensation should be clawed back if profits plunge within five years of it being paid, as an incentive for careful long-term stewardship over fast¬buck speculation.

• Finally, US. prosecutors need to redouble their efforts. US. prosecutions of corporate, securities and bank fraud actually fell last year to 39 per cent below the 2003 level.

David Olive
Toronto Star
06 11 2011

SUCCESSION PLANS LACKING: SURVEY

2011-06-10T08:59:00.002-04:00

BOOMERS DEPARTING

'Knowledge transfer' at risk as owners set to retire by 2020

Half of Canadian businesses in a recent survey do not have a succession plan, a growing problem in aging boardrooms, says the Canadian Institute of Chartered Business Valuators.

"Business owners and leaders are pulling up stakes in a Boomer-led
management exodus over the next decade," the report says. "As many as 50% of Canada's businesses may not be ready to cope with this massive change and associated loss of experience."

As well, as many as 70% of business owners will be set to retire before 2020, the report says.

The CICBV surveyed more than 200 Canadian executives and business leaders over a period of several months.

"We found a lot of entrepreneurs had succession and exit plans:

Whether those would work or not was another thing," the report says .

Recently, Tim Hortons Inc., had to payout $6.1-million in severance and consulting salary to former chief executive Don Schroeder, after the two parties tussled over a succession plan.

Mr. Schroeder abruptly left the coffee and doughnut maker at the end of May, only weeks after presiding over the company's annual general meeting.

Part of the problem for many aging executives is that the 2008 financial crisis and resulting recession came just as they were winding down their careers, ready to shuffle off to pasture with their legacies secure.

"That puts plans on hold. They are being forced to rebuild in a business climate they may not understand, against competitors they may never see coming;' the CICBV report says.

A chief execiltive in consumer services lamented that four of their most senior staff in one department were all over 60.

"It's about knowledge transfer. I'm afraid to death of losing the legacy of the organization through this;' the chief executive said.

And one chief executive of an energy company complained that many private and family businesses have gotten "spooked" and may sell before they are ready.

"They thought their cash cow would go forever - now it's a drag on them as they try to carry on in a difficult world and even the good ones are saying:
'I can't take much more of this. I'd rather sell.' "

Eric Lam

Financial Post
June 10, 2011

SUCCESSION PLANNING IN THE LIFE INSURANCE INDUSTRY

2011-06-09T07:21:00.002-04:00

Here are some views.

An advisor posed his concerns.

A reply follows.

Hello,

"Well, this is a problem that has puzzled many of us over the years and as the aging group of sales folks keeps getting older the question becomes more difficult for many of us to answer.

From my point of view I guess the mistake we may make is over estimating the value that we place on our business OR the fact that the person looking to take us out doesn't appreciate the value of what they are getting.

I hear the numbers of 1, 2 or 3 times renewals or trailers talked about a lot and for that kind of money I almost feel I would rather let the business run off the books then give it away.

Assume I would be making $100K a year. If I would get the maximum amount of 3X that is 300K, all of which may be taxable in the year I receive it. Of course, there may be some ways to minimize that such as having a corporation receive the money but I am no tax lawyer or account so I would leave that to them. To me I am just not seeing the value in that proposition and that is why I am suggesting that it might be more financially rewarding to just let the business run off the books.

Perhaps nobody would admit they might do that but it is something I think a lot of us think about.

Of course, assuming we are insurable we could get some associates to take some life insurance out on us for far more than that and when we die, the reward would be paid out. But who might want to wait for that day. My mother will be 101 this year. Will my wife have to wait that long to receive the money? I am sure she hopes not:)!!!!

In any event, I would also be happy for some advice.

Even some of my clients who have been with me for over 30 years as asking when I am planning to pack it in, but as in my father's case; he died with his boots on. He worked despite his illness until a month before he passed away.

If he can do it, why can't I?

Looking forward to some interesting chat around this subject."

Here is one advisor's views.

"Thank you for your very thoughtfully presented views which I share.

Here are 2 of my own for your consideration.

Firstly, how do you invite a young life insurance agent/advisor into a business for 30 - 40 years that cannot be sold for more than 1 to 3 times revenue. It takes $2,000,000 to generate $1,000,000 of income - $300,000 is absurd.

Secondly, our business is premised on trust relationships. Your longtime clients have a very personal bond with you. That bond is not simply transferable to a new successor at any price. It must be earned - over time.

In our family a young family member was groomed for succession over a 34 year period.

Our responsibility in our financial advisory role with our clients is fiduciary in nature - in my opinion.

The regulatory bodies in Canada and the US are moving in that direction.

The disconnect is that we are in a highly transactional industry controlled by 'manufacturers' of products. That applies to the entire spectrum of financial services - not simply the life sector.

The Enrons, Wall Street and others have highlighted the urgency of Raising The Bar from commodity sales to professional practice.

It will take time for this cultural shift to mature.

In our family's case the senior member of our family died with his 'boots on' at age 92.

I have never seen this business model as professionally effective.

I hope these thoughts and views are helpful".

Dan Zwicker
Toronto.