Wednesday, August 9, 2017

Pride & Riches

Pride & Riches
by Bryan Neva

“Get rid of Pride and Riches will do no harm!”
—St. Augustine of Hippo

Sometime around the year 400, there was a monk named Pelagius who, while living in the city of Rome, became concerned about poverty and the oppression of the poor by the rich.  And he conceived a simple solution: “Get rid of the rich and you will find no poor!”  In other words, he believed that the rich were the cause of poverty because they oppressed the poor, so if they just outlawed being rich then that would solve the problem of poverty. 

In response to Pelagius’ idea, St. Augustine of Hippo said, “Get rid of pride and riches will do no harm!”  In other words, Augustine believed that it was the pride of the rich that was the real cause of poverty and oppression of the poor.  Augustine didn’t buy into Pelagius’ argument that the divisions in the world were between the rich and the poor, but rather it was between the proud and the humble.  He believed that the inequality of wealth and power was a fact of life.  But if the rich stopped abusing their power and practiced humility instead then that would solve the problems of poverty and the oppression of the poor.

In ancient Roman culture, there was a belief that the rich could rule the city provided they treated those below them well and showed “civic love” by spending money to maintain the economy and provide work for the poor.  Augustine added to this belief by saying that the rich should also abandon their pride (instead of their wealth) and give alms to the poor.  There were “good rich people” and there were “bad rich people.”  The “good rich people” treated those below them well, practiced humility and did not abuse their power, and they shared their wealth with society through their spending and alms giving.  The “bad rich people” did none of these.

Over time, Augustine’s view on riches proved to be exactly right.  When communism reared its ugly head in the early 20th century they did exactly what Pelagius proposed: they outlawed being rich.  But it didn’t solve the problems of poverty as those in power abused their authority and oppressed the poor.  The communist leaders weren't rich but they were still full of pride.  The failure of communism proved that the divisions in the world were not between the rich and the poor, but rather between the proud and the humble as Augustine said.  Wealth is not the problem in and of itself; the real problem is pride!


Nowhere in the Bible does it ever condemn being rich…what it condemns is the love of riches.  St. Paul in his first letter to the Bishop Timothy (6:10) wrote, “For the love of money is the root of all evil.”  Jesus said in Matthew 19:24, “It’s easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.”  Why is it so difficult for a rich person to go to heaven because they love riches more than God and their fellow man?  

Jesus also said in Matthew 6:24, “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money."  Jesus was talking about keeping our priorities straight.  Obviously, we all need money to live.  Jesus needed money too, but interestingly he gave the coin purse to the man who would betray him for thirty pieces of silver.  When we keep our priorities straight, we put God first, others second, and ourselves third.  And money should be really low on our priority list.

Friday, July 21, 2017

Go With Your Gut Feeling | Magnus Walker | TEDxUCLA

Go With Your Gut Feeling
by Magnus Walker | TEDxUCLA

Do what you love and you'll never have to work a day in your life.


Monday, July 17, 2017

Should American Homes Be Disposable? by Allen Laudenslager & Bryan Neva

Should American Homes Be Disposable?
by Allen Laudenslager & Bryan Neva

In a February 27, 2014 blog posted on Freakonomics.com entitled, “Why Are Japanese Homes Disposable?”, it discussed the reasons why the Japanese think of their homes as disposable.  In Japan, homes actually depreciate in value because when they’re sold the new owners just demolish them and build new homes in their place.  Consequently, there’s a huge demand for new homes in Japan.

In the west when you hear of “a huge demand for new homes,” you’d naturally think the economy in that place is booming and the population is increasing.  But that’s not the case in Japan.  The economy in Japan has been stagnating for over twenty years, and the Japanese population has been declining due to low birth rates and a cultural resistance to immigration.  Furthermore, the housing vacancy rate in Japan is close to 20%.  So Japan defies common sense economics.  Why is this?

One possibility discussed in the blog is that after World War II the country’s homes were demolished and the replacement homes built were very shoddy construction unable to withstand the weather and Japan’s frequent, catastrophic earthquakes.  With more stringent building codes it was understandable those homes would be demolished and replaced with better-built, earthquake resistant homes.  But all those homes were replaced by 1980.

Another possibility discussed is that the Japanese culture highly values “newness,” so they’ve come to view housing as a perishable item like a car.  Unlike in the west where people maintain and improve their homes, the Japanese just let their homes deteriorate like their cars.  And this seems to be the most likely reason why the Japanese view homes as disposable.

Maybe this comes from the Japanese recognition that a house is a machine that they live in just as a car is a machine that they travel in.  All machines wear out with use and houses are no exception.  Yes, that lifespan can be extended with proper maintenance, but a used car is still worth less than the same new car no matter the level of maintenance.  A used house is worth less than a new house, but not as much as the maintenance costs after 20, 30, or 40 years.  Most houses need major renovations in 10 to 20 years.  In the U.S., the bursting of the housing bubble in 2008 actually reset home values to their real value after years of everyone failing to understand that houses naturally wear out.

In Japan, there are more architects and construction workers than in any other developed country because of the high demand for new homes. Whereas in America, there’s a huge demand for home improvement, which is why there are so many big box home improvements stores like Lowes and Home Depot.  Americans believe they can add value to their homes and eventually sell them for a profit if they’re properly maintained and improved. The huge home improvement industry in the U.S. is just a way for people to slow down the depreciation of their homes so they can eventually sell for a profit.  And if they’ve purchased a home in a good location, then the land value will appreciate and they could eventually make a bigger profit.

The markets do not entirely set home values, rather the banks indirectly set home values based on how much they’ll loan someone to buy a house.  If you want to buy a home, the only things that matter are how much the bank will loan you and how much money you can put down on the house.  After all, before a bank will approve a loan they’ll have an appraisal done, and if the bank says, “no we don’t think the house is worth that much,” you’d either have to put more money down on the house or the seller would have to be willing to accept less for the house.  (This is a standard clause written into most home selling agreements that the sale is contingent on the appraised value.)  So if the banks used the actual cost to build a new house minus the cost to renovate the old house to like-new condition then home values would be more realistically priced.  In fact, this is exactly what they do for commercial properties like warehouses and office buildings.

Slavishly misapplying the concept of “the market sets the value” leads to silly bidding wars similar to the silly bidding wars on the television show Storage Wars where the actors end up bidding against each other rather than the expected value of the storage unit’s contents.  Remember, those actors can afford to overbid since the bidders are getting paid as actors on the show, meaning that the producers of the show are in effect subsidizing them in order to create more drama.  Similarly, if the bank wasn’t subsidizing you, you’d need to compare the cost of that house in that location to a brand new house built in the same location!  One reason there’s so much resistance to new construction in some localities (especially in California) is that homeowners know that new construction drives down the values of existing homes.  The only reason to pay more for an existing home is that too many people want to live in a particular area and there’s no competing new home construction.  In other words, the land value is greater than the value of the home; which is why in real estate the mantra is “location, location, location.”  In the small island city of Coronado, California, a suburb of San Diego, you literally can’t buy a “dog house” on a "postage stamp sized lot" for less than a million dollars!

Most Americans, including bankers, don’t realize that the real reason home values go up is that the value of the land is increasing faster than the value that the wood, brick, and mortar is decreasing. They are in fact paying a premium for the location.  It’s OK to pay that premium as long as you understand that’s what you’re doing.  Whenever you pay a premium for something you are hoping to resell it in a few years for a profit. (On average, most Americans only live in a house for 7 years; whereas, in Japan, it’s for decades.) So you have to keep in mind that the next person who wants to buy that house may not be willing to pay a premium which is why there are so many declining cities like Detroit, MI.

So should American homes be disposable?  Well, in fact, they already are.  The only difference between Japan and the U.S. is that homes depreciate much faster in Japan than they do in the U.S.  In Japan, homes depreciate close to zero within 30 years (in about one generation); whereas, in the U.S., it’s closer to 100 years (in about four generations).  In Europe where the homes are typically built with stone and concrete rather than with wood like in Japan and the U.S., homes depreciate over 200 years (about eight generations).

Most experts believe that the Japanese culture of thinking their homes are disposable is very wasteful and shortsighted.  They’re giving up a huge store of wealth they could be accumulating in the form of their homes.  No other developed or semi-developed country in the world treats real estate like the Japanese do: as disposable in one generation.  And in the long run, by changing the attitudes of the Japanese they could potentially become more prosperous and pull their economy out of its slump. 

On the other hand, we could take a lesson from the Japanese by changing our attitudes about homes.  If homes were discounted proportionately to the cost of getting them back into like-new condition, then homes would be more reasonably priced and more Americans could afford to buy homes.  

Thursday, July 13, 2017

GE Needs A New Strategy And A New CEO by Adam Hartung, Forbes

My Thoughts: I've never been a fan of GE as I believe the company represents everything that's wrong with Corporate America today with it's profit-at-any-price, throw-the-baby-out-with-the-bathwater mentality. I post this article from Forbes more as an example of how NOT to run a company where profits come before people. Also, GE is a good example of why bigger is not always better; historically, smaller, more agile companies outperform huge conglomerates. GE under the leadership of Jack Welch and Jeff Immelt shows that eventually, you'll reap what you sow. As of this writing, GE announced Immelt will be retiring on August 1st, and John Flannery will be assuming the role. Personally, I'm rooting for the vultures that want to come in and tear GE up into smaller, more bite-sized pieces.  - Bryan Neva 7/13/17


GE Needs A New Strategy And A New CEO







I cover business growth & overcoming organizational obstacles. 







I'm an expert on business growth and overcoming organizational obstacles to success. I do keynote speaking at conferences and management meetings, and a workshop leader for companies wanting to find their next growth engine. I am the author of "Create Marketplace Disruption: How to Stay Ahead of the Competition," a contributing editor for International Journal of Innovation Science and a leadership columnist for CIOMagazine and ComputerWorld. I currently serve as audit chair for 6D Global, and am CEO of Soparfilm Energy E&P company as well as Content Laboratory. I previously headed business development for Pepsico and Dupont, and was a consultant with The Boston Consulting Group. I have a Harvard MBA and live in Chicago.

General Electric CEO Jeffrey Immelt (ERIC PIERMONT/AFP/Getty Images)
General Electric stock had a small pop recently when investors thought CEO Jeffrey Immelt might be pushed out. Obviously more investors hope the CEO leaves than stays. And it appears clear that activist investor Nelson Peltz of Trian Partners thinks it is time for a change in CEO atop the longest running member of the Dow Jones Industrial Average (DJIA.)
You can't blame investors, however. Since he took over the top job at General Electric in 2001 (16 years ago) GE's stock value has dropped 38%. Meanwhile, the DJIA has almost doubled. Over that time, GE has been the greatest drag on the DJIA, otherwise the index would be valued even higher! That is terrible performance  especially as CEO of one of America's largest companies.
But, after 16 years of Immelt's leadership, there's a lot more wrong than just the CEO at General Electric these days. As the JPMorgan Chase analyst Stephen Tusa revealed in his analysis, these days GE is actually overvalued, "cash is weak, margins/share of customer wallet are already at entitlement, the sum of the parts valuation points to a low 20s stock price." He goes on to share his pessimism in GE's ability to sell additional businesses, or create cost lowering synergies or tax strategies.

Former Chairman and CEO of General Electric Jack Welch. (AP Photo/Richard Drew)
What went so wrong under Immelt? Go back to 1981. GE installed Jack Welch as its new CEO.  Over the next 20 years there wasn't a business Neutron Jack wouldn't buy, sell or trade. CEO Welch understood the importance of growth. He bought business after business, in markets far removed from traditional manufacturing, building large positions in media and financial services. He expanded globally, into all developing markets. After businesses were  acquired the pressure was relentless to keep growing. All had to be no. 1 or no. 2 in their markets or risk being sold off. It was growth, growth and more growth.
Welch's focus on growth led to a bigger, more successful GE. Adjusted for splits, GE stock rose from $1.30 per share to $46.75 per share during the 20 year Welch leadership. That is an improvement of 35 times - or 3,500%. And it wasn't just due to a great overall stock market.  Yes, the DJIA grew from 973 to 10,887  or about 10.1 times. But GE outperformed the DJIA by 3.5 times (350%).  Not everything went right in the Welch era, but growth hid all sins  and investors did very, very, very well.
Under Welch, GE was in the rapids of growth. Welch understood that good operating performance was not enough. GE had to grow. Investors needed to see a path to higher revenues in order to believe in long term value creation. Immediate profits were necessary but insufficient to create value, because they could be dissipated quickly by new competitors. So Welch kept the headquarters team busy evaluating opportunities, including making some 600 acquisitions. They invested in things that would grow, whether part of historical GE, or not.
Jeff Immelt as CEO took a decidedly different approach to leadership. During his 16 year leadership GE has become a significantly smaller company. He sold off the plastics, appliances and media businesses  once good growth providers  in the name of "refocusing the company." Plans currently exist to sell off the electrical distribution/grid business (Industrial Solutions) and water businesses, eliminating another $5 billion in annual revenue. He has dismantled the entire financial services and real estate businesses that created tremendous GE value, because he could not figure out how to operate in a more regulated environment. And cost cutting continues. In the GE Transportation business, which is supposed to remain, plans have been announced to double down on cost cutting, eliminating another 2,900 jobs.
Under Immelt GE has focused on profits. Strategy turned from looking outside, for new growth markets and opportunities, to looking inside for ways to optimize the company via business sales, asset sales, layoffs and other cost cutting. Optimizing the business against some sense of an historical "core" caused nearsighted  and shortsighted  quarterly actions, financial gyrations and transactions rather than building a sustainable, growing revenue stream. Under Immelt sales did not just stagnate, sales actually declined while leadership pursued higher margins.
By focusing on the "core" GE business (as defined by Immelt) and pursuing short term profit maximization, leadership significantly damaged GE. Nobody would have ever imagined an activist investor taking a position in Welch's GE in an effort to restructure the company. Its sales growth was so good, its prospects so bright, that its P/E (price to earnings) multiple kept it out of activist range.
But now the vultures see the opportunity to do an even bigger, better job of whacking up GE  of tearing it into small bits while killing off all R&D and innovation — like they did at DuPont. Over 16 years Immelt has weakened GE's business what was the most omnipresent industrial company in America, if not the world - to the point that it can be attacked by outsiders ready to chop it up and sell it off in pieces to make a quick buck.
Thomas Edison, one of the world's great inventors, innovators and founder of GE ,would be appalled. That GE needs now, more than ever, is a leader who understands you cannot save your way to prosperity, you have to invest in growth to create future value and increase your equity valuation.
In May, 2012 (five years ago) I warned investors that Immelt was the wrong CEO. I listed him as the fourth worst CEO of a publicly traded company in America. While he steered GE out of trouble during the financial crisis, he also simply steered the company in circles as it used up its resources. Then was the time to change CEOs, and put in place someone with the fortitude to develop a growth strategy that would leverage the resources, and brand, of GE. But, instead, Immelt remained in place, and GE became a lot smaller, and weaker.
At this point, it is probably too late to save GE. By losing sight of the need to grow, and instead focusing on optimizing the old business while selling assets to raise cash for reorganizations, Immelt has destroyed what was once a great innovation engine. Now that the activists have GE in their sites it is unlikely they will let it ever return to the company it once was - creating whole new markets by developing new technologies that people never before imagined. The future looks a lot more like figuring out how to maximize the value of each piece of meat as it's carved off the GE carcass.

Links to more Info:

Featured Post

Changing Corporate Culture

Changing Corporate Culture by Bryan J. Neva, Sr. Captain Jean-Luc Picard (played by actor Patrick Stewart) after he was assimilate...