The present administration is apparently becoming aware of the nation's economic situation. Depending on which economic indicators one wishes to rely upon, we are (or are not) coming out of the recession. Certainly housing starts are one of the prime indicators, and this one has not offered any great hope that the recession has ended, or is ending.
On August 30th an interesting article appeared in the Wall Street Journal. The lead dealt with a real estate developer in California who had recently been erecting "affordable housing." In a rather lengthy article the Journal described what was obviously a new phenomenon to the editors. Commenting on the worst home building recession in years, the Journal pointed out that a small but growing number of builders throughout the country "have discovered" that many first time buyers are willing to trade a long commute for a home of their own.
Shortly after World War II, returning veterans and expanding birth rates created a seemingly boundless market for low cost, individual housing. At that time, many veterans and their families were "privileged" to rent housing in large tracts of pre-fabricated "Quonset Huts," on land made available by municipalities throughout the country. Abraham Levitt founded Levitt and Sons, using experience gained in building houses for the navy during the war, and began building entire suburban towns. In 1948, the first houses sold for less than $10,000, including appliances. The post-war GI Bill of Rights made purchase by veterans a relatively simple matter. Levitt and Sons built more than 50,000 homes in three Levittowns, located in as many states, and their example was followed in cities like Chicago and Washington, D.C. Contrary to then prevailing belief, the communities did not degenerate into slums and shanty towns. For the most part, they now represent very respectable suburban locations, at aggressively inflated current prices. The American Dream appears to include a need to reinvent the wheel on a periodic basis. Why else would we take so long to recognize the existence of a viable and potentially very large market for one of our basic industries? Why, particularly when this market could be very important in revitalizing housing, and possibly assisting the country to commence a new period of economic vitality?
During the late 50's and early 60's, our automotive industrial complex was caught off guard by introduction of the original Volkswagen Beetle. Since then, U.S. technology has steadily come up with electronic and other significant innovations, only to have them reverse engineered, and produced offshore, to our national economic detriment.
Perhaps the time has come for American industry to pay more attention to those forward thinking people within it. We do not appear to have run out of steam in the area of creativity. We do appear to lack something in the area of "process," building products well and at lower cost.
The nation certainly does not want for entrepreneurial spirit. Even during this time of economic uncertainty, new businesses, some spurred by fresh ideas, and others by innovative changes on old ones, are opening every week. In keeping with classic experience, many of these will fail; some will achieve a modicum of good fortune; but a few will become world class success stories.
We recently were presented with a well prepared business plan for a new enterprise in microcomputer manufacturing and sales. It represented a very ambitious set of goals. Operators of this business believe they will be able to correct mistakes made by every major manufacturer and retailer during the past five years. By doing this, they feel able to capture a major share of markets for the manufacture of PCs; and sales and service of both PCs and software to end users. We found this somewhat difficult to believe and were unable to offer assistance. We could not, however, refrain from admiring the hubris of this little company's management, and one specific theme which ran throughout the financing proposal—service!
This nation has long prided itself on supporting one of the largest economic service sectors in the world. Unfortunately, we seem to have forgotten the definition of the word "service." Every reader of this publication can think of any number of examples of this problem. We have personally encountered some prime examples during recent months.
We had occasion to speak with the "customer service" department for Chevrolet. After a number of calls, each lengthy because of delays caused by "all of our customer service representatives" being "busy assisting other customers," we were finally told that a particular part was no longer available. We were further informed that we had arrived at the last unit within General Motors that could be of assistance, and that no one else in this giant corporation could possibly help. We are pleased to note that this is not the case and that subsequent calls to other GM locations at least identified possibilities for assistance.
Last month we received notification from a major West Coast department store chain [Broadway, which has since gone away and become part of Macy's] concerning a "new service." For one low price of $25.00 we were offered a "Gold Key Card" sticker to place on our retail charge card. This sticker offered "12 exciting services" reserved just for us. The unfortunate fact is that most or all of the services now available for $25.00 a year are those which "old line" department stores considered routine for all customers, at no charge, during the years when service could be expected from every department store. [At least Macy's West has a President's Club which offers a higher level of service to customers with "good" spending habits.]
Compounding our apparent lack of service awareness, we may once again be facing a "technology gap." During the early 60's we suffered due to a shortage of engineering, scientific, and technical students graduating from our universities. This was highlighted, and well publicized, in connection with the Russian launch of Sputnik. The Kennedy administration saw an opportunity for a good program, and good press, and another aspect of the Great Society was born.
We began a national effort to entice students into technical disciplines. High school students were regaled with information about the large number of opportunities offered to engineers, mathematicians, and computer scientists. The availability of well paying jobs was given considerable publicity, and university students were offered tempting scholarships, many of which included living allowances and even pocket money.
Results of the program were almost too successful, and approximately 10 years later we found ourselves with some regional overabundance of certain technical disciplines. Eventually, problems of supply and demand were corrected, and viewed in perspective, the effort produced a balanced pool of technically trained individuals which fueled a successful space program, and the national revolution in computers and electronics. Unfortunately, these academic products of the 60's are now reaching retirement age, and the nation has failed to create their replacements. We are once again faced with a shortage of critical technical disciplines. Even more serious is the fact that this shortage was predicted over 10 years ago.
At that time it was perceived that lower birth rates had reduced the number of students entering colleges in all disciplines. Reduction in the total number of available students, combined with low percentages of students normally entering technical courses of study, led to predictions of severe shortages of trained scientific, engineering, and technical personnel during the 90's. The 90's are now almost behind us and the prediction was obviously correct. The gap is currently being filled by technical personnel trained abroad, who have emigrated to the U.S. in response to a need. If this situation is not to be compounded, with potentially disastrous results, we should actively be encouraging students to choose careers from among the technical disciplines. We must also begin an aggressive national program to ensure that our secondary schools institute programs designed to educate more students for entry into technical fields.
In order to prevent the American Dream from becoming a nightmare, the business leaders of this country must once again become national, and international leaders. They must revitalize our national thinking, foster the talent, and efficiently create the products necessary to compete in ever shrinking world markets.
We normally try to stay away from topics that smack too much of legal implications. Once in a while something happens that pushes us into what we can only consider an "inescapable corner." In this particular instance, two things have occurred.
During the past 30 days we have been "assaulted" twice by fiduciary responsibility. In both cases the term was simply used as an excuse: on one occasion to avoid making any decision, and on the other, to excuse what was in our opinion a variety of particularly onerous decisions.
Every individual who performs in a management position has some fiduciary responsibility to others. Officers and directors of corporations, whether public or private are in this position, as are those senior partners who manage partnership affairs. Each partner in a business relationship has some degree of fiduciary responsibility to all of his co-partners. But . . .
Earlier this month we contacted an attractive candidate on behalf of one of our equally attractive buyer clients. We were quickly informed that as a public company, there was a fiduciary responsibility to shareholders on the part of company officers. We were told further that all offers from any qualified buyer would quickly be brought to the "appropriate person" and ultimately to the company's board of directors. End of discussion!
Our experience has demonstrated over many years that the CEO who gives only this initial reply is interested primarily in maintaining his job or too busy to discuss what might be very beneficial to himself and his shareholders. If unable to turn the conversation around to a serious discussion of why client wishes to buy and why CEO might be interested in discussing sale, we are probably wasting the time of all concerned.
Like many others, the term is generally over used and occasionally misapplied. This is particularly true in business situations, to which we will restrict this little discussion. Every individual who performs in a management position has some fiduciary responsibility to others. Officers and directors of corporations, whether public or private are in this position. Senior partners, those who manage partnership affairs, are most definitely in a position of trust, related to those whose affairs they manage. Each partner in a business relationship has some degree of fiduciary responsibility to all of his other partners.
In the second instance, seller, who has been negotiating with our client buyer for a number of months, used FR as a blatant excuse for extracting several major concessions at the eleventh hour. When dealing with partnerships it is typical to find one or two individuals representing the entire group. This is essential if a transaction is ever going to be completed. It becomes very problematic if the negotiating representative puts several new, very costly, and extremely onerous provisions on the table at the last minute, all in the name of FR. Fortunately, we and our client were successful in eliminating all of the suggested provisions. We are also aware that seller's negotiator will be retiring after a brief transition period, absent which this would probably have been a good time to thank all parties for their time, pack up and go home.