A salute to immigrants, America’s unsung national treasure

A salute to immigrants, America’s unsung national treasure

I’m amazed about Americans’ debate regarding immigration. And all the rhetoric from candidate Trump about the need to close America’s borders.

I was raised in Oklahoma, which prior to statehood was called The Indian Territory. I was raised around the only real Native Americans. All the rest of us are immigrants. Some voluntarily, some as slaves. But the fact that people want to debate whether we allow people to become Americans seems to me somewhat ridiculous, since 98% of Americans are immigrants. The majority within two generations.

immigrationThroughout America’s history, being an immigrant has been tough. The first ones had to deal with bad weather, difficult farming techniques, hostile terrain, wild animals – it was very difficult. As time passed immigrants continued to face these issues, expanding westward. But they also faced horrible living conditions in major cities, poor food, bad pay, minimal medical care and often abuse by the people already that previously immigrated.

And almost since the beginning, immigrants have been not only abused but scammed. Those who have resources frequently took advantage of the newcomers that did not. And this persists. Immigrants that lack a social security card are unable to obtain a driver’s license, unable to open bank accounts, unable to apply for credit cards, unable to even sign up for phone service. Thus they remain at the will of others to help them, which creates the opportunity for scamming.

Take for example an immigrant trying to make a phone call to his relatives back home. For most immigrants this means using a calling card. Only these cards are often a maze of fees, charges and complex rules that result in much of the card’s value being lost. A 10-minute call to Ghana can range from $2.86 to $8.19 depending on which card you use. This problem is so bad that the FCC has fined six of the largest card companies for misleading consumers about calling cards. They continue to advise consumers about fraud. And even Congress has held hearings on the problem.

One outcome of immigrants’ difficulties has been the ingenuity and innovativeness of Americans. To this day around the world people marvel at how clever Americans are, and how often America leads the world in developing new things. As a young country, and due to the combination of resources and immigrants’ tough situation, America frequently is first at developing new solutions to solve problems – many of which are problems that clearly affect the immigrant population.

So, back to that phone call. Some immigrants can use Microsoft Skype to talk with their relatives, using the Internet rather than a phone. But this requires the people back home have a PC and an internet connection. Both of which could be dicey. Another option would be to use something like Facebook’s WhatsApp, but this requires the person back home have either a PC or mobile device, and either a wireless connection or mobile coverage. And, again, this is problematic.

But once again, ingenuity prevails. A Romanian immigrant named Daniel Popa saw this problem, and set out to make communications better for immigrants and their families back home. In 2014 he founded QuickCall.com to allow users to make a call over wireless technology, but which can then interface with the old-fashioned wired (or wireless) telecom systems around the world. No easy task, since telephone systems are a complex environment of different international, national and state players that use a raft of different technologies and have an even greater set of complicated charging systems.

But this new virtual phone network, which links the internet to the traditional telecom system, is a blessing for any immigrant who needs to contact someone in a rural, or poor, location that still depends on phone service. If the person on the other end can access a WiFi system, then the calls are free. If the connection is to a phone system then the WiFi interface on the American end makes the call much cheaper – and performs far, far better than any other technology. QuickCall has built the carrier relationships around the world to make the connections far more seamless, and the quality far higher.

But like all disruptive innovations, the initial market (immigrants) is just the early adopter with a huge need. Being able to lace together an internet call to a phone system is pretty powerful for a lot of other users. Travelers heading to a remote location, like Micronesia, Africa or much of South America — and even Eastern Europe – can lower the cost of planning their trip and connect with locals by using QuickCall.com. And for most Americans traveling in non-European locations their cell phone service from Sprint, Verizon, AT&T or another carrier simply does not work well (if at all) and is very expensive when they arrive. QuickCall.com solves that problem for these travelers.

Small businesspeople who have suppliers, or customers, in these locations can use QuickCall.com to connect with their business partners at far lower cost. Businesses can even have their local partners obtain a local phone number via QuickCall.com and they can drive the cost down further (potentially to zero). This makes it affordable to expand the offshore business, possibly even establishing small scale customer support centers at the local supplier, or distributor, location.

In The Innovator’s Dilemma Clayton Christensen makes the case that disruptive innovations develop by targeting a customer with an unmet need. Usually the innovation isn’t as good as the current “standard,” and is also more costly. Today, making an international call through the phone system is the standard, and it is fairly cheap. But this solution is often unavailable to immigrants, and thus QuickCall.com fills their unmet need, and at a cost substantially lower than the infamous calling cards, and with higher quality than a pure WiFi option.

But now that it is established, and expanding to more countries – including developed markets like the U.K. – the technology behind QuickCall.com is becoming more mainstream. And its uses are expanding. And it is reducing the need for people to have international calling service on their wired or wireless phone because the available market is expanding, the quality is going up, and the cost is going down. Exactly the way all disruptive innovations grow, and thus threaten the entrenched competition.

The end-game may be some form of Facebook in-app solution. But that depends on Facebook or one of its competitors seizing this opportunity quickly, and learning all QuickCall.com already knows about the technology and customers, and building out that network of carrier relationships. Notice that Skype was founded in 2003, and acquired by Microsoft in 2011, and it still doesn’t have a major presence as a telecom replacement. Will a social media company choose to make the investment and undertake developing this new solution?

As small as QuickCall.com is – and even though you may have never heard of it – it is an example of a disruptive innovation that has been successfully launched, and is successfully expanding. It may seem like an impossibility that this company, founded by an immigrant to solve an unmet need of immigrants, could actually change the way everyone makes international calls. But, then again, few of us thought the iPhone and its apps would cause us to give up Blackberries and quit carrying our PCs around.

America is known for its ingenuity and innovations. We can thank our heritage as immigrants for this, as well as the immigrant marketplace that spurs new innovation. America’s immigrants have the need to succeed, and the unmet needs that create new markets for launching new solutions. For all those conservatives who fear “European socialism,” they would be wise to realize the tremendous benefits we receive from our immigrant population. Perhaps these naysayers should use QuickCall.com to connect with a few more immigrants and understand the benefits they bring to America.

Really Governor Christie, Vetoing a Minimum Wage Hike the Week Before Labor Day?

Really Governor Christie, Vetoing a Minimum Wage Hike the Week Before Labor Day?

Tuesday New Jersey Governor Chris Christie vetoed legislation which would have raised the state’s minimum wage to $15/hour over 5 years. The current rate is $8.38, and he felt it was too big an increase, too fast.

Of course the governor makes quite a bit more than the minimum wage. And although he vetoed the legislation because he is “pro-business” he has never run a business and really has no idea what the economic impact of a higher minimum wage would be on New Jersey. He assumes because it would cost more to pay low-wage workers that it would harm businesses who are contributors to his re-election. Happy Labor Day all you minimum wage workers.

Labor-Day Clip-ArtWhat he does not consider is the ability for those businesses to pass along those higher wages by raising prices. When everyone has to pay more then it becomes possible for everyone to raise prices. Simultaneously, the low income people who make more money, and spend 100% of what they make, pass along the higher wages in increased consumption which increases business revenues. So an argument can be made that a higher minimum wage could help businesses to have happier employees who spend more and actually improve the economy overall, and for their business.

Remember Henry Ford and his $5 day? In 1914, by cutting work hours and doubling pay Ford greatly motivated his workforce, reducing turnover and training cost. Simultaneously he improved the ability of his workers to spend more and thus grow sales for many businesses. He was just one company, but his higher pay was so successful that it caused other companies to pay more, and everyone benefited. Many historians think of this as an important event in the birth of the American middle class.

The other contributor to the growth of the middle class was unions. By WWI unions had become far more prevalent in the USA. Unions improved working conditions, fought for the abolition of child labor, eliminated employer discrimination, improved benefits like health care and allowed employees to negotiate for higher wages. By banding together in unions employees were able to negotiate with their employer much more powerfully than for each employee to negotiate individually.

In 1928, the height of the “Gilded Age” of America, the bottom 90% of Americans earned 50.7% of the nation’s income, while the top 1% earned 23.9%. Affects of the Great Depression, and increased unionization, changed this so that by 1944 the bottom 90% was earning 67.5% of the income, while the income of the top 1% had plummeted to 11.3%.

Of course, unions and their bosses were far from perfect. Over time union clout grew, and management increasingly caved to union demands in order to avoid debilitating strikes. Some companies were drowned in worker demands, and became unproductive with featherbedded workers and work rules that seriously harmed productivity. Meanwhile, rampant corruption among union leadership led to intense mob involvement and increased crime. Which led to a lot less support for unions among Americans – often even among the workers who were union members.

In 1979, four years after famed union leader Jimmy Hoffa disappeared after a dust-up with the mob, 34% of American workers were unionized. Today only 10% are unionized, and a large percentage of those are in government positions like teaching, law enforcement, firefighting, postal service, etc. 38% of workers without a college degree were unionized in 1979. Today, 11% are unionized.

And today, we have returned to the Gilded Age. Union dislike has led to implementing Right to Work laws in several states, which makes it far easier for private employers to avoid, or eliminate, unions. And changes in jobs from largely factory line work to far more desk-related (shifting from manufacturing to tech and health care) has made it less easy to find common ground among workers for unionizing. Additionally, sharp cuts in progressive income taxes, which were replaced by dramatic increases in regressive sales and property taxes, coupled with a huge increase in social security and other worker taxes has transformed America’s income portrait. Once again (2012) the top 1% take home 22.5% of America’s income, while the bottom 90% take home only 50.7%.

This dramatic shift in incomes is very prevalent in today’s election contests. There is ample talk about the displaced workers, under-employed workers and hidden unemployment. It is clear there are a lot of very wealthy people who have a lot of power to affect elections – including one candidate who won his party’s candidacy without even raising external funds! Simultaneously, there are a lot of very angry, frustrated people who want significant change – and express an aggressive dislike for the candidates of both major parties.

What is clear is that America prospered when the disparity between rich and poor was not as it is today. There was a greater sense of commonality, even as people disagreed on policies, when workers could identify with the heads of their companies and the bankers. Today, the difference between the haves and have-nots is so great that a large percentage of Americans believe they can only retire if they hit the lottery!

Throughout history income inequality has led to national overthrow, ouster of government heads, and riots. The French overturned their monarchy and became a republic when their king and queen ignored the impoverished. Filipinos threw out the Marcos regime. And home-grown American terrorists are often disenchanted with lifestyles far from their expectations.

There is clearly a need to find ways to reduce income inequality. It is incumbent upon leaders to seek out ways to improve the lives of their constituents, including their customers, suppliers and employees. And one, small act that any governor can do is simply abandon old assumptions about the horribleness of minimum wage laws – and unions as responsible for a currently weak economy – and instead take action to put a few more dollars into the hands of those who work, yet have the least.

Most Americans, including white collar workers and executives, will take the day off next Monday to celebrate Labor Day. This national holiday was created by labor unions in the 1880s, and made a national holiday in 1894 after the US Army and US Marshal’s Service killed multiple workers at the Pullman strike. Labor Day was instituted as a celebration of the American worker, and the economic and social achievements they accomplished. It is a time to honor those who work hard, often for not enough pay, and yet make America great.

Happy Labor Day!

[Footnote: Most of the statistics for this column came from The Atlantic – Fewer Unions, Lower Pay for Everybody]

How the Fed Works, and Why You Don’t Need to Be Worried

How the Fed Works, and Why You Don’t Need to Be Worried

Last weekend the Federal Reserve Board’s leadership met to discuss the future of America’s monetary policy. Reports out of that meeting, like reports from all Fed meetings, are long, tedious, and pretty much say nothing. Every analyst tries to interpret from the Governor’s statements what might happen next. And because the Fed leadership is so vague, and so academic, the analysts inevitably never guess right.

End the FedThis bothers a lot of people. There are those who want a lot more “transparency” from the Fed – meaning they want much clearer signals as to what is intended, and usually specifics as to intended actions and a timeline. Because the Fed’s meetings are so cloaked and opaque, some congress members actually want to do away with the Fed, or regulate it a lot more closely.

But for most of us, most of the time, the Fed is pretty much immaterial. When the Fed matters is when there are big swings in the economy, which happen quickly. Then their action is crucial.

Why small changes in interest rates don’t really matter to most of us

Take the debate right now over a quarter point rise in interest rates. How does this affect most people? Not much. If you have credit card debt, or a car loan, your interest rate is set by the financial institution. And you may hear people talk about zero interest rates, but you know your rate is a whopping amount higher than that. And you know that a quarter point change in the Federal Funds rate will not affect the interest on those loans.

Where you’ll see a difference is in a mortgage. But here, is a quarter point really important?

When I graduated business school in 1982 and wanted to buy my first home the interest rate on an annual, variable rate loan was 18.5%. My first house cost just about $100,000 so the interest was $18,500/year. Today, mortgages are around 3.5%, fixed for anywhere from 3 to 7 years. $18,500 in interest now funds a $525,000 mortgage! If interest rates go to 3.75% – which has many analysts so concerned for the economy – the home value associated with interest of $18,500 drops to $500,000. Probably within the negotiating range of the buyer.

So you have to borrow a LOT of money for this quarter point to matter. And it does matter to CEOs and CFOs of companies that lead corporations on the S&P 500, or those running huge REITs (Real Estate Investment Trusts) that have enormous debts. But that is not most of us. For most of us, that quarter point difference will not have any impact on our lives.

So why do people pay so much attention to the Fed?

Federal ReserveThe Fed was originally created during barely 100 years ago (1913) to try and create a more stable monetary system. But this didn’t work too well in the beginning, which led to the Great Depression. And then, to make matters worse, the conservative bent of the Fed coupled with its fixation on stable interest rates led it to actually cut the money supply as the economy was tanking. This led to a collapse in the value of goods and services, particularly real estate, and the loss of millions of jobs greatly worsening the Great Depression.

It was the depression which really caused economists to focus on studying Fed actions and the economic repercussions. A group of economists, most notably Milton Friedman at the University of Chicago, started saying that the Fed shouldn’t focus on interest rates, but rather on the supply of money. These folks were called “monotarists” and they said interest rates should float, and economists should focus on stable prices.

The 1970s – “Easy Money” inflation

As we moved into the 1970s, and as Fed Governors kept trying to control interest rates, they found themselves creating more and more money to keep rates low, and in return prices skyrocketed. “Easy money” as they called it allowed ratcheting upward incomes, big pay raises, higher prices for commodities and inflation. Another monetarist leader, Paul Volcker, was named head of the Fed. He rapidly moved to contract the money supply, allowing those 18.5% mortgage rates to develop. Yet, this did stabilize prices and eventually rates lowered, moving down constantly from 1980 to the near zero rates of today for Treasury Bonds and other very large, low risk borrowers.

When the Great Recession hit the Fed leadership, led by Ben Bernanke, remembered the lessons of the Great Depression. As they saw real estate values tumble they were aware of the domino effect this would have on bank failures, and then business failures, just as they had occurred in the 1930s. So they flooded the market with additional currency to keep failures to a minimum, and ease the real estate collapse. This sent interest rates plummeting to the record low levels of the last few years.

Policy must address the current situation, not be biased by historical memories

Yet, people keep worrying about inflation. Those who lived through the 1970s and saw the damage done by inflation are still fearful of it. So they scream loudly about their fear that the last 8 years of monetary ease will create massive future inflation. They want the Fed to be much tighter with money saying that all this cash will someday create inflation down the road. Their view of history is guiding their analysis. Their bias is a fear that “easy money” once caused a problem, so surely it will cause a problem again.

But economists who study prices keep saying that there are currently no signs of price escalation – that wages have not moved up appreciably in a decade, home values are barely where they were a decade ago. Commodity prices are not escalating, in fact many (like oil) are at historically low prices. The dollar is stronger because, relatively speaking, the USA economy is doing better than the rest of the developed world. As long as prices and wages remain without high gains, there is little reason to tighten money, and little reason to feel a higher interest rate is needed.

Further, current monetary increases will not cause future inflation, because monetary policy only affects what is happening now. “Easy money” today can only create inflation today, not in 3 years. And inflation is almost nowhere to be seen.

Ignore Fed “fine tuning.” Pay attention when a crisis hits. Otherwise, its up to the politicians

The big thing to remember is that small changes in policy, such as those that might affect a quarter point change in rates, is “fine tuning” the money supply. And that has pretty nearly no affect on most of us. Where as citizens we should care about the Fed is when big changes happen. We don’t want mistakes like happened in the 1930s, because that hurt everyone. But we do want fast action to deal with a crisis like the falling real estate values and bank collapses that were happening a decade ago.

Remember, it was when the Fed targeted interest rates that the USA economy got into so much trouble. First in the Great Depression, and then in the inflationary 1970s. But when the Fed targeted prices, such as in the 1980s and the mid-2000s, it did exactly what it was created to do, maintain a stable money supply.

So don’t worry about whether analysts think interest rates are going to change a quarter point, or even a half point, in the next year. The big economic question facing us is not a Fed question, but rather “what will it take to increase investment so that we can create more jobs, and provide higher wages leading to a higher standard of living for everyone?” And that is not a question for the Fed to answer. That is up to the economic policy makers in the legislature and the White House.

Can Jet.Com Save WalMart from Sears’ Fate?

Can Jet.Com Save WalMart from Sears’ Fate?

Walmart is in more trouble than its leadership wants to acknowledge, and investors need to realize that it is up to Jet.com to turn around the ailing giant. And that is a big task for the under $1B company.

Nobody likes to think their business can disappear. What CEO wants to tell his investors or employees “we’re no longer relevant, and it looks like our customers are all going somewhere else for their solutions”? Unfortunately, most leadership teams become entrenched in the business model and deny serious threats to longevity, thus leading to inevitable failure as customers switch.

In early September the Howard Johnson’s in Bangor, Maine will close. This will leave just one remaining HoJo in the USA. What was once an iconic brand with hundreds of outlets strung along the fast growing interstate highway system is now nearly dead. People still drive the interstate, but trends changed, fast food became a good substitute, and unable to update its business model this once great brand died.

Sears announced another $350M quarterly loss this week. That makes $9B in accumulated losses the last several quarters. Since Chairman/CEO Ed Lampert took over Sears and KMart have seen same store sales decline every single quarter except one. Unable to keep its customers Chairman/CEO Ed Lampert has been closing stores and selling assets to stem the cash drain, but to keep the company afloat his hedge fund, ESL, is loaning Sears Holdings another $300M to keep the company alive. On top of the $500M the company borrowed last quarter. That the once iconic company, and Dow Jones Industrial Average component, is going to fail is a foregone conclusion.

Walmart & SearsBut most people still think this fate cannot befall the nearly $500M revenue behemoth WalMart. It’s simply too big to fail in most people’s eyes.

Yet, the primary news about WalMart is not good. Bloomberg this week broke the news that one of the most crime-ridden places in America is the local WalMart store. One store in Tulsa, OK has had 5,000 police visits in the last 5 years, and 4 local stores have had 2,000 visits in the last year alone. Across the system, there is 1 violent crime in a Walmart every day. By constantly promoting its low cost approach WalMart has attracted a class of customer that simply is more prone to committing crime. And policies implemented to hang onto customers, like letting them camp out in the parking lots overnight, serve to increase the likelihood of poverty-induced crime.

But this outcome is also directly related to WalMart’s business model and strategy. To promote low prices WalMart has automated more operations, and cut employees like greeters. Thus leadership brags about a 23% increase in sales/employee the last decade, but that has happened as the employment shrank by 400,000. Fewer employees encourages more crime.

In a real way WalMart has “outsourced” its security to local police departments. Experts say the cost to eliminate this security problem are about $3.2B – or about 20% of WalMart’s total profitability. Ouch! In a world where WalMart’s net margin of 3% is fully 1/3 lower than Target’s 4.6% the money just isn’t there any longer for WalMart to invest in keeping its stores safe.

With each passing month WalMart is becoming the “retailer of last resort” for people who cannot shop on-line. People who lack credit cards, or even bank accounts. People without the means, or capability, of shopping by computer, or paying electronically. People who have nowhere else to go to shop, due to poverty and societal conditions. Not exactly the ideal customer base for building a growing, profitable business.

And to maintain revenues WalMart has invested heavily in transitioning to superstores which offer a large grocery section. But now Kroger, WalMart’s #1 grocery competitor, is taking aim at the giant retailer, slashing prices on 1,000 items. Just like competition from the “dollar stores” has been attacking WalMart’s general merchandise aisles. Thus putting even more pressure on thinning margins, and leaving less money available to beef up security or entice new customers to the stores.

And the pressure from e-commerce is relentless. As detailed in the Wall Street Journal, WalMart has been selling on-line for about 15 years, and has a $14B on-line sales presence. But this is only 3% of total sales. And growth has been decelerating for several quarters. Last quarter Walmart’s e-commerce sales grew 7%, while the overall market grew 15% and Amazon ($100B revenues) grew 31%. It is clear that Walmart.com simply is not attracting enough customers to grow a healthy replacement business for the struggling stores.

Thus enter the acquisition of Jet.com. The hope is that this extremely uprofitable $1B on-line retailer will turn around WalMart’s fortunes. Imbue it with much higher growth, and enhanced profitability. But will WalMart make this transition. Is leadership ready to cannibalize the stores for higher electronic sales? Are they willing to make stores smaller, and close many more, to shift revenues on-line? Are they willing to change the WalMart brand to something different, while letting Jet.com replace WalMart as the dominant brand?

If they do then WalMart could become something very different in the future. If they really realize that the market is shifting, and that an extreme change is necessary in strategy and tactics then WalMart could become something very different, and remain competitive in the future. But if they don’t, they’ll follow Sears into the Whirlpool, and end up much like Howard Johnson’s.

Mythbuster – 6 Steps to Greater Diversity and Superior Results

Mythbuster – 6 Steps to Greater Diversity and Superior Results

Most of the time “diversity” is a code word for adding women or minorities to an organization.  But that is only one way to think about diversity, and it really isn’t the most important.  To excel you need diversity in thinking.  And far too often, we try to do just the opposite.

Mythbusters” was a television series that ran 14 seasons across 12 years.  The thesis was to test all kinds of things people felt were facts, from historical claims to urban legends, with sound engineering approaches to see if the beliefs were factually accurate – or if they were myths.  The show’s ability to bust, or prove, these myths made it a great success.

Workplace DiversityThe show was led by 2 engineers who worked together on the tests and props.  Interestingly, these two fellows really didn’t like each other.  Despite knowing each other for 20 years, and working side-by-side for 12, they never once ate a meal together alone, or joined in a social outing.  And very often they disagreed on many aspects of the show.  They often stepped on each others toes, and they butted heads on multiple issues.  Here’s their own words:

“We get on each other’s nerves and everything all the time, but whenever that happens, we say so and we deal with it and move on,” he explained. “There are times that we really dislike dealing with each other, but we make it work.”

The pair honestly believed it is their differences which made the show great.  They challenged each other continuously to determine how to ask the right questions, and perform the right tests, and interpret the results.  It was because they were so different that they were so successful.  Individually each was good.  But together they were great.  It was because they were of different minds that they pushed each other to the highest standards, never had an integrity problem, and achieved remarkable success.

Yet, think about how often we select people for exactly the opposite reason. Think about “knock-out” comments and questions you’ve heard that were used to keep from increasing the diversity:

  • I wouldn’t want to eat lunch with that person, so why would I want to work with them?
  • We find that people with engineering (or chemical, or fine arts, etc.) backgrounds do well here.  Others don’t.
  • We like to hire people from state (or Ivy League, etc) colleges because they fit in best
  • We always hire for industry knowledge.  We don’t want to be a training ground for the basics in how our industry works
  • Results are not as important as how they were obtained – we have to be sure this person fits our culture
  • Directors on our Board need to be able to get along or the Board cannot be effective
  • If you weren’t trained in our industry, how could you be helpful?
  • We often find that the best/top graduates are unable to fit into our culture
  • We don’t need lots of ideas, or challenges. We need people that can execute our direction
  • He gets things done, but he’s too rough around the edges to hire (or promote.)  If he leaves he’ll be someone else’s problem.

In 2011 I wrote in Forbes “Why Steve Jobs Couldn’t Find a Job Today.” The column pointed out that hiring practices are designed for the lowest common denominator, not the best person to do a job.  Personalities like Steve Jobs would be washed out of almost any hiring evaluation because he was too opinionated, and there would be concerns he would cause too much tension between workers, and be too challenging for his superiors.

Simply put, we are biased to hire people that think like us.  It makes us comfortable. Yet, it is a myth that homogeneous groups, or cultures, are the best performing.  It is the melding of diverse ways of thinking, and doing, that leads to the best solutions.  It is the disagreement, the arguing, the contention, the challenging and the uncomfortableness that leads to better performance.  It leads to working better, and smarter, to see if your assumptions, ideas and actions can perform better than your challengers.  And it leads to breakthroughs as challenges force us to think differently when solving problems, and thus developing new combinations and approaches that yield superior returns.

What should we do to hire better, and develop better talent that produces superior results?

  1. Put results and accomplishments ahead of culture or fit.  Those who succeed usually keep succeeding, and we need to build on those skills for everyone to learn how to perform better
  2. Don’t let ego into decisions or discussions.  Too many bad decisions are made because someone finds their assumptions or beliefs challenged, and thus they let “hurt feelings” keep them from listening and considering alternatives.
  3. Set goals, not process.  Tell someone what they need to accomplish, and not how they should do it. If how someone accomplishes their goals offends you, think about your own assumptions rather than attacking the other person.  There can be no creativity if the process is controlled.
  4. Set big goals, and avoid the desire to set a lot of small goals.  When you break down the big goal into sub-goals you effectively kill alternative approaches – approaches that might not apply to these sub-goals.  In other words, make sure the big objective is front and center, then “don’t sweat the small stuff.”
  5. Reward people for thinking differently – and be very careful to not punish them.  It is easy to scoff at an idea that sounds foreign, and in doing so kill new ideas.  Often it’s not what they don’t know that is material, but rather what you don’t know that is most important.
  6. Be blind to gender, skin color, historical ancestry, religion and all other elements of background.  Don’t favor any background, nor disfavor another.  This doesn’t mean white men are the only ones who need to be aware.  It is extremely easy for what we may call any minority to favor that minority.  Assumptions linked to physical attributes and history run deep, and are hard to remove from our bias.  But it is not these historical physical and educational elements that matter, it is how people think that matters – and the results they achieve.

 

 

Donald Trump – Why It’s Easier To Be CEO Than Mayor, Governor or President

Donald Trump – Why It’s Easier To Be CEO Than Mayor, Governor or President

Donald Trump has had a lot of trouble gaining good press lately. Instead, he’s been troubled by people from all corners reacting negatively to his comments regarding the Democrat’s convention, some speakers at the convention, and his unwillingness to endorse re-election for the Republican speaker of the house. For a guy who has been in the limelight a really long time, it seems a bit odd he would be having such a hard time – especially after all the practice he had during the primaries.

The trouble is that Donald Trump still thinks like a CEO. And being a CEO is a lot easier than being the chief executive of a governing body.

CEOs are much more like kings than mayors, governors or presidents:

  • They aren’t elected, they are appointed. Usually after a long, bloody in-the-trenches career of fighting with opponents – inside and outside the company.
  • They have the final say on pretty much everything. They can choose to listen to their staff, and advisors, or ignore them. Not employees, customers or suppliers can appeal their decisions.
  • If they don’t like the input from an employee or advisor, they can simply fire them.
  • If they don’t like a supplier, they can replace them with someone else.
  • If they don’t like a customer, they can ignore them.
  • Their decisions about resources, hiring/firing, policy, strategy, fund raising/pricing, spending – pretty much everything – is not subject to external regulation or legal review or potential lawsuits.
  • Most decisions are made by understanding finance. Few require a deep knowledge of law.
  • There is really only 1 goal – make money for shareholders. Determining success is not overly complicated, and does not involve multiple, equally powerful constituencies.
  • They can make a ton of mistakes, and pretty much nobody can fire them. They don’t stand for re-election, or re-affirmation. There are no “term limits.” There is little to tie them personally to their decisions.
  • They have 100% control of all the resources/assets, and can direct those resources wherever they want, whenever they want, without asking permission or dealing with oversight.
  • They can say anything they want, and they are unlikely to be admonished or challenged by anyone due to their control of resource allocation and firing.
  • 99% of what they say is never reported. They talk to a few people on their staff, and those people can rephrase, adjust, improve, modify the message to make it palatable to employees, customers, suppliers and local communities. There is media attention on them only when they allow it.
  • They have the “power of right” on their side. They can make everyone unhappy, but if their decision improves shareholder value (if they are right) then it really doesn’t matter what anyone else thinks

One might challenge this by saying that CEOs report to the Board of Directors.  Technically, this is true.  But, Boards don’t manage companies. They make few decisions. They are focused on long-term interests like compliance, market entry, sales development, strategy, investor risk minimization, dividend and share buyback policy.  About all they can do to a CEO if one of the above items troubles them is fire the CEO, or indicate a lack of support by adjusting compensation. And both of those actions are far from easy. Just look at how hard it is for unhappy shareholders to develop a coalition around an activist investor in order to change the Board — and then actually take action. And, if the activist is successful at taking control of the board, the one action they take is firing the CEO, only to replace that person with someone knew that has all the power of the old CEO.

It is very alluring to think of a CEO and their skills at corporate leadership being applicable to governing. And some have been quite good. Mayor Bloomberg of New York appears to have pleased most of the citizens and agencies in the city, and his background was an entrepreneur and successful CEO.

But, these are not that common. More common are instances like the current Governor of Illinois, Bruce Rauner. A billionaire hedge fund operator, and first-time elected politician, he won office on a pledge of “shaking things up” in state government.  His first actions were to begin firing employees, cutting budgets, terminating pension benefits, trying to remove union representation of employees, seeking to bankrupt the Chicago school district, and similar actions. All things a “good CEO” would see as the obvious actions necessary to “fix” a state in a deep financial mess.  He looked first at the financials, the P&L and balance sheet, and set about to improve revenues, cut costs and alter asset values. His mantra was to “be more like Indiana, and Texas, which are more business friendly.”

Only, governors have nowhere near the power of CEOs. He has been unable to get the legislature to agree with his ideas, most have not passed, and the state has languished without a budget going on 2 years. The Illinois Supreme Court said the pension was untouchable – something no CEO has to worry about. And it’s nowhere near as easy to bankrupt a school district as a company you own that needs debt/asset restructuring because of all those nasty laws and judges that get in the way. Additionally, government employee unions are not the same as private unions, and nowhere near as easy to “bust” due to pesky laws passed by previous governors and legislators that you can’t just wipe away with a simple decision.

With the state running a deficit, as a CEO he sees the need to undertake the pain of cutting services. Just like he’d cut “wasteful spending” on things he deemed non-essential at one of the companies he ran. So refusing funding during budget negotiations for health care worker overtime, child care, and dozens of other services that primarily are directed at small groups seems like a “hard decision, well needed.” And if the lack of funding means the college student loan program dries up, well those students will just have to wait to go to college, or find funding elsewhere. And if that becomes so acute that a few state colleges have to close, well that’s just the impact of trying to align spending with the reality of revenues, and the customers will have to find those services elsewhere.

And when every decision is subjected to media reporting, suddenly every single decision is questioned. There is no anonymity behind a decision. People don’t just see a college close and wonder “how did that happen” because there are ample journalists around to report exactly why it happened, and that it all goes back to the Governor. Just like the idea of matching employee rights, pay requirements, contract provisioning and regulations to other states – when your every argument is reported by the media it can come off sounding a lot like as state CEO you don’t much like the state you govern, and would prefer to live somewhere else. Perhaps your next action will be to take the headquarters (now the statehouse) to a neighboring state where you can get a tax abatement?

Donald Trump the CEO has loved the headlines, and the media. He was the businessman-turned-reality-TV-star who made the phrase “you’re fired” famous. Because on that show, he was the CEO. He could make any decision he wanted; unchallenged. And viewers could turn on his show, or not, it really didn’t matter. And he only needed to get a small fraction of the population to watch his show for it to make money, not a majority. And he appears to be very genuinely a CEO. As a CEO, as a TV celebrity — and now as a candidate for President.

Obviously, governing body chief executives have to be able to create coalitions in order to get things done. It doesn’t matter the party, it requires obtaining the backing of your own party (just as John Boehner about what happens when that falters) as well as the backing of those who don’t agree with you.  ou don’t have the luxury of being the “tough guy” because if you twist the arm to hard today, these lawmakers, regulators and judges (who have long memories) will deny you something you really, really want tomorrow. And you have to be ready to work with journalists to tell your story in a way that helps build coalitions, because they decide what to tell people you said, and they decide how often to repeat it. And you can’t rely on your own money to take care of you. You have to raise money, a lot of money, not just for your campaign, but to make it available to give away through various PACs (Political Action Committees) to the people who need it for their re-elections in order to keep them backing you, and your ideas. Because if you can’t get enough people to agree on your platforms, then everything just comes to a stop — like the government of Illinois. Or the times the U.S. Government closed for a few days due to a budget impasse.

And, in the end, the voters who elected you can decide not to re-elect you. Just ask Jimmy Carter and George H.W. Bush about that.

On the whole, it’s a whole lot easier to be a CEO than to be a mayor, or governor, or President. And CEOs are paid a whole lot better. Like the moviemaker Mel Brooks (another person born in New York by the way) said in History of the World, Part 1it’s good to be king.

Why McDonald’s and Apple Investors Should Be Very Wary

Why McDonald’s and Apple Investors Should Be Very Wary

Growth Stalls are deadly for valuation, and both Mcdonald’s and Apple are in one.

August, 2014 I wrote about McDonald’s Growth Stall.  The company had 7 straight months of revenue declines, and leadership was predicting the trend would continue.  Using data from several thousand companies across more than 3 decades, companies in a Growth Stall are unable to maintain a mere 2% growth rate 93% of the time. 55% fall into a consistent revenue decline of more than 2%. 20% drop into a negative 6%/year revenue slide. 69% of Growth Stalled companies will lose at least half their market capitalization in just a few years. 95% will lose more than 25% of their market value.  So it is a long-term concern when any company hits a Growth Stall.

Growth StallA new CEO was hired, and he implemented several changes.  He implemented all-day breakfast, and multiple new promotions.  He also closed 700 stores in 2015, and 500 in 2016.  And he announced the company would move its headquarters from suburban Oakbrook to downtown Chicago, IL. While doing something, none of these actions addressed the fundamental problem of customers switching to competitive options that meet modern consumer food trends far better than McDonald’s.

McDonald’s stock languished around $94/share from 8/2014 through 8/2015 – but then broke out to $112 in 2 months on investor hopes for a turnaround.  At the time I warned investors not to follow the herd, because there was nothing to indicate that trends had changed – and McDonald’s still had not altered its business in any meaningful way to address the new market realities.

Yet, hopes remained high and the stock peaked at $130 in May, 2016.  But since then, the lack of incremental revenue growth has become obvious again. Customers are switching from lunch food to breakfast food, and often switching to lower priced items – but these are almost wholly existing customers.  Not new, incremental customers.  Thus, the company trumpets small gains in revenue per store (recall, the number of stores were cut) but the growth is less than the predicted 2%.  The only incremental growth is in China and Russia, 2 markets known for unpredictable leadership.  The stock has now fallen back to $120.

Given that the realization is growing as to the McDonald’s inability to fundamentally change its business competitively, the prognosis is not good that a turnaround will really happen.  Instead, the common pattern emerges of investors hoping that the Growth Stall was a “blip,” and will be easily reversed.  They think the business is fundamentally sound, and a little management “tweaking” will fix everything.  Small changes will lead to the  classic hockey-stick forecast of higher future growth.  So the stock pops up on short-term news, only to fall back when reality sets in that the long-term doesn’t look so good.

Unfortunately, Apple’s Q3 2016 results (reported yesterday) clearly show the company is now in its own Growth Stall.  Revenues were down 11% vs. last year (YOY or year-over-year,) and EPS (earnings per share) were down 23% YOY.  2 consecutive quarters of either defines a Growth Stall, and Apple hit both.  Further evidence of a Growth Stall exists in iPhone unit sales declining 15% YOY, iPad unit sales off 9% YOY, Mac unit sales down 11% YOY and “other products” revenue down 16% YOY.

This was not unanticipated.  Apple started communicating growth concerns in January, causing its stock to tank. And in April, revealing Q2 results, the company not only verified its first down quarter, but predicted Q3 would be soft.  From its peak in May, 2015 of $132 to its low in May, 2016 of $90, Apple’s valuation fell a whopping 32%!  One could say it met the valuation prediction of a Growth Stall already – and incredibly quickly!

But now analysts are ready to say “the worst is behind it” for Apple investors.  They are cheering results that beat expectations, even though they are clearly very poor compared to last year.  Analysts are hoping that a new, lower baseline is being set for investors that only look backward 52 weeks, and the stock price will move up on additional company share repurchases, a successful iPhone 7 launch, higher sales in emerging countries like India, and more app revenue as the installed base grows – all leading to a higher P/E (price/earnings) multiple. The stock improved 7% on the latest news.

So far, Apple still has not addressed its big problem.  What will be the next product or solution that will replace “core” iPhone and iPad revenues?  Increasingly competitors are making smartphones far cheaper that are “good enough,” especially in markets like China.  And iPhone/iPad product improvements are no longer as powerful as before, causing new product releases to be less exciting.  And products like Apple Watch, Apple Pay, Apple TV and IBeacon are not “moving the needle” on revenues nearly enough.  And while experienced companies like HBO, Netflix and Amazon grow their expanding content creation, Apple has said it is growing its original content offerings by buying the exclusive rights to “Carpool Karaoke – yet this is very small compared to the revenue growth needs created by slowing “core” products.

Like McDonald’s stock, Apple’s stock is likely to move upward short-term.  Investor hopes are hard to kill.  Long-term investors will hold their stock, waiting to see if something good emerges.  Traders will buy, based upon beating analyst expectations or technical analysis of price movements. Or just belief that the P/E will expand closer to tech industry norms. But long-term, unless the fundamental need for new products that fulfill customer trends – as the iPad, iPhone and iPod did for mobile – it is unclear how Apple’s valuation grows.

What the NBA All-Star Game Venue Change Teaches Us About Decision-Making

What the NBA All-Star Game Venue Change Teaches Us About Decision-Making

Most leaders think of themselves as decision makers.  Many people remember in 2006 when President George Bush, defending Donald Rumsfeld as his Defense Secretary said “I am the Decider.  I decide what’s best.”  It earned him the nickname “Decider-in-Chief.” Most CEOs echo this sentiment, Most leaders like to define themselves by the decisions they make.

But whether a decision is good, or not, has a lot of interpretations.  Often the immediate aftermath of a decision may look great.  It might appear as if that decision was obvious.  And often decisions make a lot of people happy.  As we are entering the most intense part of the U.S. Presidential election, both candidates are eager to tell you what decisions they have made – and what decisions they will make if elected.  And most people will look no further than the immediate expected impact of those decisions.

However, the quality of most decisions is not based on the immediate, or obvious, first implications.  Rather, the quality of decisions is discovered over time, as we see the consequences – intended an unintended.  Because quite often, what looked good at first can turn out to be very, very bad.

NBA-All-Star-ExitThe people of North Carolina passed a law to control the use of public bathrooms.  Most people of the state thought this was a good idea, including the Governor.  But some didn’t like the law, and many spoke up.   Last week the NBA decided that it would cancel its All Star game scheduled in Charlotte due to discrimination issues caused by this law.  This change will cost Charlotte about $100M.

That action by the NBA is what’s called unintended consequences.  Lawmakers didn’t really consider that the NBA might decide to take its business elsewhere due to this state legislation.  It’s what some people call “oops.  I didn’t think about that when I made my decision.”

Robert Reich, Secretary of Labor for President Clinton, was a staunch supporter of unions.  In his book “Locked in the Cabinet” he tells the story of visiting an auto plant in Oklahoma supporting the union and workers rights.  He thought his support would incent the company’s leaders to negotiate more favorably with the union.  Instead, the company closed the plant.  Laid-off everyone.  Oops.  The unintended consequences of what he thought was an obvious move of support led to the worst possible outcome for the workers.

President Obama worked the Congress hard to create the Affordable Care Act, or Obamacare, for everyone in America.  One intention was to make sure employers covered all their workers, so the law required that if an employer had health care for any workers he had to offer that health care to all employees who work over 30 hours per week.  So almost all employers of part time workers suddenly said that none could work more than 30 hours.  Those that worked 32 (4 days/week) or 36 suddenly had their hours cut.  Now those lower-income people not only had no health care, but less money in their pay envelopes.  Oops.  Unintended consequence.

President Reagan and his wife launched the “War on Drugs.”  How could that be a bad thing?  Illegal drugs are dangerous, as is the supply chain.  But now, some 30 years later, the Federal Bureau of Prisons reports that almost half (46.3% or over 85,000) inmates are there on drug charges.  The USA now spends $51B annually on this drug war, which is about 20% more than is spent on the real war being waged with Afghanistan, Iraq and ISIS.  There are now over 1.5M arrests each year, with 83% of those merely for possession.  Oops.  Unintended consequences.  It seemed like such a good idea at the time.

This is why it is so important leaders take their time to make thoughtful decisions, often with the input of many other people.  Because the quality of a decision is not measured by how one views it immediately.  Rather, the value is decided over time as the opportunity arises to observe the unintended consequences, and their impact.  The best decisions are those in which the future consequences are identified, discussed and made part of the planning – so they aren’t unintended and the “decider” isn’t running around saying “oops.”

As you listen to the politicians this cycle, keep in mind what would be the unintended consequences of implementing what they say:

  • What would be the social impact, and transfer of wealth, from suddenly forgiving all student loans?
  • What would be the consequences on trade, and jobs, of not supporting historical government trade agreements?
  • What would be the consequences on national security of not supporting historically allied governments?
  • What would be the long-term consequence not allowing visitors based on race, religion or sexual orientation?
  • What would be the consequence of not repaying the government’s bonds?
  • What would be the long-term impact on economic growth of higher regulations on banks – that already have seen dramatic increases in regulation slowing the recovery?
  • What would be the long-term consequences on food production, housing and lifestyles of failing to address global warming?

Business leaders should follow the same practice.  Every time a decision is necessary, is the best effort made to obtain all the information you could on the topic?  Do you obtain input from your detractors, as well as admirers?  Do you think through not only what is popular, but what will happen months into the future?  Do you consider the potential reaction by your customers?  Employees?  Suppliers?  Competitors?

There are very few “perfect decisions.” All decisions have consequences.  Often, there is a trade-off between the good outcomes, and the bad outcomes.  But the key is to know them all, and balance the interests and outcomes.  Consider the consequences, good and bad, and plan for them.  Only by doing that can you avoid later saying “oops.”

PokeMon Go – How Nintendo Beat Microsoft and Sony With an End Run

PokeMon Go – How Nintendo Beat Microsoft and Sony With an End Run

Poke’Mon Go is a new sensation.  Just launched on July 6, the app is already the #1 app in the world – and it isn’t even available in most countries.  In less than 2 weeks, from a standing start, Nintendo’s new app is more popular than both Facebook and Snapchat.  Based on this success, Nintendo’s equity valuation has jumped 90% in this same short time period.

Poke'Mon GoSome think this is just a fad, after all it is just 2 weeks old.  Candy Crush came along and it seemed really popular.  But after initial growth its user base stalled and the valuation fell by about 50% as growth in users, time on app and income all fell short of expectations. And, isn’t the world of gaming dominated by the likes of Sony and Microsoft?

A bit of history

Nintendo launched the Wii in 2006 and it was a sensation.  Gamers could do things not previously possible.  Unit sales exceeded 20m units/year for 2006 through 2009.  But Sony (PS4) and Microsoft (Xbox) both powered up their game consoles and started taking share from Nintendo.  By 2011 Nintendo sale were down to 11.6m units, and in 2012 sales were off another 50%.  The Wii console was losing relevance as competitors thrived.

Sony and Microsoft both invested heavily in their competition.  Even though both were unprofitable at the business, neither was ready to concede the market.  In fall, 2014 Microsoft raised the competitive ante, spending $2.5B to buy the maker of popular game Minecraft.  Nintendo was becoming a market afterthought.

Meanwhile, back in 2009 Nintendo had 70% of the handheld gaming market with its 3DS product.  But people started carrying the more versatile smartphones that could talk, text, email, execute endless apps and even had a lot of games – like Tetrus. The market for handheld games pretty much disappeared, dealing Nintendo another blow.

Competitor strategic errors

Fortunately, the bitter “fight to the death” war between Sony and Microsoft kept both focused on their historical game console business.  Both kept investing in making the consoles more powerful, with more features, supporting more intense, lifelike games.  Microsoft went so far as to implement in Windows 10 the capability for games to be played on Xbox and PCs, even though the PC gaming market had not grown in years.  These massive investments were intended to defend their installed base of users, and extend the platform to attract new growth to the traditional, nearly 4 decade old market of game consoles that extends all the way back to Atari.

Both companies did little to address the growing market for mobile gaming.  The limited power of mobile devices, and the small screens and poor sound systems made mobile seem like a poor platform for “serious gaming.” While game apps did come out, these were seen as extremely limited and poor quality, not at all competitive to the Sony or Microsoft products.  Yes, theoretically Windows 10 would make gaming possible on a Microsoft phone.  But the company was not putting investment there.  Mobile gaming was simply not serious, and not of interest to the two Goliaths slugging it out for market share.

Building on trends makes all the difference

Back in 2014 I recognized that the console gladiator war was not good for either big company, and recommended Microsoft exit the market.  Possibly seeing if Nintendo would take the business in order to remove the cash drain and distraction from Microsoft.  Fortunately for Nintendo, that did not happen.

Nintendo observed the ongoing growth in mobile gaming.  While Candy Crush may have been a game ignored by serious gamers, it nonetheless developed a big market of users who loved the product.  Clearly this demonstrated there was an under-served market for mobile gaming.  The mobile trend was real, and it’s gaming needs were unmet.

Simultaneously Nintendo recognized the trend to social.  People wanted to play games with other people.  And, if possible, the game could bring people together.  Even people who don’t know each other.  Rather than playing with unseen people located anywhere on the globe, in a pre-organized competition, as console games provided, why not combine the social media elements of connecting with those around you to play a game?  Make it both mobile, and social.  And the basics of Poke’Mon Go were born.

Then, build out the financial model.  Don’t charge to play the game.  But once people are in the game charge for in-game elements to help them be more successful.  Just as Facebook did in its wildly successful social media game Farmville.  The more people enjoyed meeting other people through the game, and the more they played, the more they would buy in-app, or in-game, elements.  The social media aspect would keep them wanting to stay connected, and the game is the tool for remaining connected.  So you use mobile to connect with vastly more people and draw them together, then social to keep them playing – and spending money.

The underserved market is vastly larger than the over-served market

Nintendo recognized that the under-served mobile gaming market is vastly larger than the overserved console market.  Those console gamers have ever more powerful machines, but they are in some ways over-served by all that power.  Games do so much that many people simply don’t want to take the time to learn the games, or invest in playing them sitting in a home or office.  For many people who never became serious gaming hobbyists, the learning and intensity of serious gaming simply left them with little interest.

But almost everyone has a mobile phone.  And almost everyone does some form of social media.  And almost everyone enjoys a good game.  Give them the right game, built on trends, to catch their attention and the number of potential customers is – literally – in the billions.  And all they have to do is download the app.  No expensive up-front cost, not much learning, and lots of fun.  And thus in two weeks you have millions of new users.  Some are traditional gamers.  But many are people who would never be a serious gamer – they don’t want a new console or new complicated game.  People of all ages and backgrounds could become immediate customers.

David can beat Goliath if you use trends

In the Biblical story, smallish David beat the giant Goliath by using a sling.  His new technology allowed him to compete from far enough away that Goliath couldn’t reach David.  And David’s tool allowed for delivering a fatal blow without ever touching the giant.  The trend toward using tools for hunting and fighting allowed the younger, smaller competitor to beat the incumbent giant.

In business trends are just as important.  Any competitor can study trends, see what people want, and then expand their thinking to discover a new way to compete.  Nintendo lost the console war, and there was little value in spending vast sums to compete with Sony and Microsoft toe-to-toe.  Nintendo saw the mobile game market disintegrate as smartphones emerged.  It could have become a footnote in history.

But, instead Nintendo’s leaders built on trends to deliver a product that filled an unmet need – a game that was mobile and social.   By meeting that need Nintendo has avoided direct competition, and found a way to dramatically grow its revenues.  This is a story about how any competitor can succeed, if they learn how to leverage trends to bring out new products for under-served customers, and avoid costly gladiator competition trying to defend and extend past products.

Starbucks and JPMorganChase Pay Raises – Just Following Trends

Starbucks and JPMorganChase Pay Raises – Just Following Trends

This week Starbucks and JPMorganChase announced they were raising the minimum pay of many hourly employees.  For about 168,000 lowly paid employees, this is really good news.  And both companies played up the planned pay increases as benefitting not only the employees, but society at large.  The JPMC CEO, Jamie Dimon, went so far as to say this was a response to a national tragedy of low pay and insufficient skills training now being addressed by the enormous bank.

Dimon and SchultzHowever, both actions look a lot more like reacting to undeniable trends in an effort to simply keep their organizations functioning than any sort of corporate altruism.

Since 2014 there has been an undeniable trend toward raising the minimum wage, now set nationally at $7.25.  Fourteen states actually raised their minimum wage starting in 2016 (Massachusetts, California, New York, Nebraska, Connecticut, Michigan, Hawaii, Colorado, Nebraska, Vermont, West Virginia, South Dakota, Rhode Island and Alaska.)  Two other states have ongoing increases making them among the states with fastest growing minimum wages (Maryland and Minnesota.)  And there are 4 additional states that promoters of a $15 minimum wage think will likely pass within months (Illinois, New Jersey, Oregon and Washington.)  That makes 20 states raising the minimum wage, with 46.4% of the U.S. population.  And they include 5 of the largest cities in the USA that have already mandated a $15 minimum wage (New York, Washington D.C., Seattle, San Francisco and Los Angeles.)

In other words, the minimum wage is going up.  And decisively so in heavily populated states with big cities where Starbucks and JPMC have lots of employees.  And the jigsaw puzzle of different state requirements is actually a threat to any sort of corporate compensation plan that would attempt to treat employees equally for common work. Simultaneously the unemployment rate keeps dropping – now below 5% – causing it to take longer to fill open positions than at any time in the last 15+ years.  Simply put, to meet local laws, find and retain decent employees, and have any sort of equitable compensation across regions both companies had no choice but to take action to raise the pay for these bottom-level jobs.

Starbucks pointed out that this will increase pay by 5-15% for its 150,000 employees.  But at least 8.5% of those employees had already signed a petition demanding higher pay.  Time will tell if this raise is enough to keep the stores open and the coffee hot.  However, the price increases announced the very next day will probably be more meaningful for the long term revenues and profits at Starbucks than this pay raise.

At JPMC the average pay increase is about $4.10/hour – from $10.15 to $12-$16.50/hour.  Across all 18,000 affected employees, this comes to about $153.5million of incremental cost.  Heck, the total payroll of these 18,000 employees is only $533.5M (after raises.) Let’s compare that to a few other costs at JPMC:

Wow, compared to these one-off instances, the recent pay raises seem almost immaterial.  While there is probably great sincerity on the part of these CEOs for improving the well being of their employees, and society, the money here really isn’t going to make any difference to larger issues.  For example, the JPMC CEO’s 2015 pay of $27M is about the same as 900 of these lowly paid employees.  Thus the impact on the bank’s financials, and the impact on income inequality, is — well — let’s say we have at least added one drop to the bucket.

The good news is that both companies realize they cannot fight trends.  So they are taking actions to help shore up employment.  That will serve them well competitively.  And some folks are getting a long-desired pay raise.  But neither action is going to address the real problems of income inequality.