Federal Stimulus - Harvard Study Yields Surprising Result

Recent research at Harvard Business School began with the premise that as a state's congressional delegation grew in stature and power through a Chairmanship in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way.

It turned out quite the opposite. Researchers found that companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressman's ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper.

Over a 40-year period, the study looked at increases in local earmarks and other federal spending that flowed to states after the senator or representative rose to the chairmanship of a powerful congressional committee. These earmarks had a negative correlation to private sector growth in the state.

Conclusion: "Our findings suggest that they (the Federal Government) should revisit their belief that federal spending can stimulate private economic development. "

For more details click here.

Sam Keller
TEC 62

CO2 Controls are coming one way or another

Regardless of whether you are in the camp that that believes that climate change is a result of human produced Carbon Dioxide or you have noted that data has been corrupted by some "scientists" here and in the UK to try to "prove" their position, the U.S. Government is moving forward.

On May 13, the EPA issued its final rule regulating Greenhouse Gases -initially limiting its reach to the largest stationary sources. Under the newly issued rule, the nation’s largest GHG emitters, such as power plants, refineries and cement production facilities, will be regulated, while smaller commercial facilities, farms and restaurants will not require Clean Air Act permits to address their GHG emissions (at least for now). For more information, click here for an article on the subject from Michael, Best and Friedrich.

Almost simultaneously, Senators John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) formally introduced a new climate change bill, known as the American Power Act. The draft was originally scheduled to be introduced in April 2010; however, the rollout of the bill encountered setbacks after Senator Lindsey Graham (R-S.C.) walked away from the negotiation table just before the bill was set to be finalized. According to Sens. Kerry and Lieberman, the legislation is intended to reduce carbon emissions by 17 percent by 2020, and 80 percent by 2050. For more information, click here for another article from Michael, Best and Friedrich.

So whether through regulation or law, we are headed for some form of cap and trade with accompanying higher electric bills regardless of whether there is good science behind it.

Achieving Organizational Excellence

Pat McDonnell is a colleague and friend. Most of his career was spent at Coopers & Lybrand where he was Vice Chairman of Business Assurance Services. He began his career as an officer in the U.S. Marine Corps.

In his book "Everyone Wants to go to Heaven - But Nobody Wants to Die" he describes in detail his Six Steps to Organizational Excellence, which he refers to in his recent newsletter quoted below. I have seen these six steps implemented - they really work!

Pat’s Perspective: Continuous Improvement – The Ultimate Objective

Continuous improvement is another of those fads foisted on organizations by naïve, but well intentioned managers looking for painless success. It ranks up there with Six Sigma, Learning Organizations, Quality Councils and others that come and go. How about you? How many continuous improvement programs have you endured over the years? That is always among the first questions I ask the MBA students in my class. I have learned to not be surprised at the number of hands, or the answer to the next question – how’d it go? The resulting groans have become familiar over the years. Having said that, I have long concluded that the state of continuous improvement is the ultimate objective of our Six Step Process for achieving organizational excellence. It is ultimate for two reasons – first, it is virtually impossible to achieve and, second, once achieved, it can never end. Only two organizations of which I have been a member have ever even come close – the Marine Corps and the Audit Practice at Coopers & Lybrand circa 1997. At its most basic, continuous improvement is the perpetual motion machine of organizational excellence. It occurs only after the organization has completed a long journey to the point where striving for excellence is embedded in the very fabric of the organization. It occurs when every individual in the organization comes to work every day committed to finding new ways to improve. Continuous improvement is completely inconsistent with the tolerance for mediocrity that infects most organization to some degree. It is only after the process has purged this tolerance – along with tolerance of procrastination, institutional lack of integrity and the “C” players responsible for it, that continuous improvement may begin to take root. The difficulty of achieving it creates great anxiety – and failure – when those proposing it realize that is the culmination of the long process of continuous upgrade that characterizes the first five of our Six Step Process. Our Process begins with understanding the fundamentals of change, including our innate human resistance. Next, we move to establishing the community of trust required to make the leap to excellence. The key is emplacing principled leaders who exhibit the intelligence and integrity to warrant our trust. It is only after effecting the required cultural change required that we can begin to think about creating a plan to maximize organizational excellence. It is here, by the way, that the Six Sigma and similar programs may be integrated with a comprehensive plan to create excellence. Once that plan is in place, only with the leadership and culture of responsibility that has been created, can we expect to actually execute it. It is here that most change programs – those that assume that the first three steps are in place, but rarely are – hit the wall. That wall stands between the organization and continuous improvement. To punch through that wall requires a level of moral courage that few organizations can successfully sustain. The challenge begins with understanding that continuous improvement is all about upgrade – in leadership, people, the revenue machine, and the processes that support them. Those individuals, ideas and processes that were adequate in the past, must either grow and expand or fail in the face of ever increasing demands for improvement. This is the challenge inherent in achieving a state of continuous improvement and the major impediment to achieving it. As Charles de Gaulle is reputed to have said about the indispensability of any individual to an organization “… the cemeteries are full of indispensable people.” He was correct – and before you launch your continuous improvement program, remember -- he was talking about you and me. That is your challenge as the leader of organizational change. Face the challenges of continuous improvement – the need for continuous upgrading of resources – and the risks and responsibilities inherent therein.

Denial - In Business It Can Be Fatal

"Denial is the unwillingness to acknowledge and deal with reality. It is the choice—sometimes willful, sometimes unconscious, often semiconscious—to enter an 'as if' world, to act 'as if' facts are not facts because they are difficult to face." In business, denial can have disastrous, sometimes fatal, results.

Examples abound in both large and small companies, although we hear more about large companies because they make the financial news. Richard Tedlow discusses many of these examples in his book "Denial - Why Business Leaders Fail to Look Facts in the Face and What to Do About It".

Here's a few:
1. Why didn't Digital Equipment Corp. CEO Kenneth Olsen see the PC as a threat to minicomputers?
2. Did Coca-Cola's Roberto Goizueta really think New Coke was a good idea?
3. How long did Henry Ford think he could keep selling black-only Model Ts?
4. Why did the Challenger disaster of 1986 occur when a hard look at the facts screams "don't launch"?
5. And then there is A&P Foods, IBM, and Sears

Denial is so difficult because the CEO who is in it can't see it. For more information click here.

More of the New Health Care Laws

On March 30, President Obama signed the Health Care and Education Reconciliation Act, the companion law to the Patient Protection and Affordable Care Act of 2010. The new Act reflects the House and Senate's changes to the original bill.

Because of the size and complexity of these new laws, I thought it would be helpful to highlight some of the key provisions that may affect your business or impact your personal tax situation. I found an excellent summary written by Schenck's Tax Team.

Click here to learn about:

CHANGES IN EMPLOYER PROVIDED HEALTH CARE PLANS

INCREASED MEDICARE TAXES

INCREASED INFORMATION REPORTING BY BUSINESSES

Federal Hiring Incentives Act

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act of 2010 (HIRE) into law. If you hire someone who has been unemployed for 60 days or more, you do not have to pay the employees payroll tax (6.2 percent) from the date of hire for the balance of 2010. In addition, you can get a $1,000 tax credit for qualified employees you hire this year and remain employed at least 52 weeks.

Let's say you hire an unemployed person on April 1, you pay them a salary of $40,000 and they work for you at least one year. The new law will save you $1,860 on payroll tax plus allow a $1,000 income tax credit. It seems very unlikely that this would be enough incentive to hire that new employee unless you were going to make the hire anyway. A nice gift, but not much incentive.

For more information, click here to view a Special Special Report from the law firm Whyte Hirschboeck Dudek on this legislation.

Health Care Legislation

On March 21, 2010 the U.S. House of Representatives passed major health care reform legislation which is likely to affect every citizen and every employer in the country. The “Patient Protection and Affordable Care Act” (H.R. 3590) or (“PPACA”) is the same bill passed by the U.S. Senate on December 24, 2009. President Obama has already signed the bill into law and it now imposes significant changes to the entire health care industry.

Two of our largest Wisconsin based law firms, Michael Best and Friedrich and Whyte Hirschboeck Dudek are offering summaries of this important legislation to help us understand it. Click here to view the Michael Best and Friedrich summary and here to view a table from them listing the main features of the bill.

Whyte Hirschboeck Dudek is offering a free Webinar on April 20, 2010 titled "Health Care Reform: A Preliminary View of What It Means To Employers." Here's the link to register.