"Supreme" Courts

I have now lived and worked here in Colorado for 25 years. Over that time, we have had various death penalty statutes, but we have never really had a death penalty. Over this time we have had a parade of killers condemned only to have their sentences altered by the courts. The one killer that pleaded to have his sentence carried out ultimately changed his mind, continued his appeals and died of natural causes.

This week saw the continuation of that practice by our State Courts. Robert Harlan, convicted kidnapper, rapist and killer saw his death penalty overturned. From all accounts, the State Supreme Court would like to set very specific rules on how jurors exercise their moral judgment in these types of cases. Jurors can know the bible and apply it to their own judgment. They just cannot bring it in to the deliberation room and assure themselves or others of their own knowledge.

Many want to believe that this is a conservative state, and in many ways that may be true. Unfortunately, for many years the people of this state chose to balance a conservative legislature with more liberal Govenors. Now the legacy of those Govenors lives on in our courts. Whether it is at the state or federal levels we need to recognize that the executive and legislative branches of government play specific roles. If we simply choose to use one to thwart the other, we find ourselves in the position we have been in for more than a quarter century here in Colorado. We find ourselves with a judiciary that simply refuses to enforce the will of the people and takes away the people's voice.

The Economics of Drug Reimportation

On ClayCalhoun.com yesterday, guest Blogger, Capitalist Idea, did a very good post on the issue of reimporting prescription drugs from Canada. The economics of lost revenue on US sales compared to the loss of all drug sales in Canada was made very simply. Capitalist Idea also makes the case very well of the danger of importing counterfeit drugs.

During the Presidential Debates last fall, it was easy to see there are many that want to believe that counterfeiting or adulteration of drugs is not a real risk. Yet, the news of side effects and drugs being removed from the market should give us pause to think. If the prescription drugs you purchased for a price that was too good to be true do you harm, who will you hold accountable?

Social Security Reform Polling Swings

As the news from Florida and Minnesota consumes us, Chairman Ken Mehlman of the Republican National Committee reported last week that sentiment on reforming the Social Security system is beginning to shift as the President and GOP legislators get the word out in front of voters. Mr. Mehlman reports that Social Security reform is beginning to become a leading issue as follows:

First, more people have come to understand the structural problems facing Social Security's solvency over the last two months, and thus, the issue has become more important to them. The latest Gallup poll shows that Americans think Social Security is now the most important domestic issue. At 12%, Social Security has increased by 8% since January and is a greater concern than the economy (10%), health care (9%), or terrorism (9%).

The increased importance of Social Security is confirmed by several other polls. This week's Battleground 2006 poll found Social Security (17%) as the "number one problem for the President and Congress to deal with." Also a recent Harris poll found 37% of Americans think Social Security is the most important issue for the government to address, an increase of 33% from last October when just 4% thought it was the most important issue.

Mr. Mehlman's memo goes on to further explain that Americans in significant numbers do believe that the Social Security system is in need of some kind of repair and cites the following:

Second, more Americans agree that Social Security needs strengthening. According to the recent ABC News/Washington Post poll, 72% of Americans think the Social Security system is headed down the road to a crisis or will require major changes in order to head of a crisis. Even seniors believe that changes are necessary to Social Security: a recent Ayres McHenry poll found 66% of Americans over age 55 believe that Social Security needs changes. A recent Gallup poll even found a majority of Americans (51%) believe that it is necessary for Congress to pass legislation to make changes to Social Security this year.

And as the President continues his campaign to inform the American people on his plan, support for Personal Retirement Accounts is starting to move to a majority. Mr. Mehlman cites the following:

Third, as Americans hear more and more about possible reforms, support for Personal Retirement Accounts has increased. A recent Gallup survey found that 58% of Americans believe that Social Security Legislation should "include a provision that would allow people who retire in future decades to invest some of their Social Security taxes in the stock market and bonds."

Support for Personal Retirement Accounts has increased. According to a recent ABC News/Washington Post poll, fifty-six percent (56%) of Americans support allowing workers to invest some of their Social Security contributions in the stock market, while 41% oppose such an idea. The number of Americans who support PRAs has increased by a net of 6% since last December, when 53% supported the plan and 44% opposed it. This is the highest level of support for PRAs since the Post first asked the question in 2000.

This is an encouraging sign. Now, if the President can convince those in the Republican party with weak knees, we may be able to move forward on a subject that has been on the back burner for far too many years. Of course, I probably should remind myself that all of the polls cited above predate last week's drop in the President's approval ratings.

The Captain Has Regained Control

I have finally regained control of the good ship My Computer. Between trojans and spyware, the last three days have been pretty unproductive. I do need to share a little piece of advice to those that create spyware and use it. If you want it to be successful it does need to be stealthy. As for all the perpetrators of all these little gems of programming wizardry, I hope that one day we see the creation of a "Make My Day Law" for hackers. After all, you did come into my home to attach me, and I am sure a little western justice to few hackers would be just the thing to slow this plague down.

Carnival of the Capitalists

This weeks collection of thoughts and ideas on business can be found at the Carnival of the Capitalists on the Mobile Technology Weblog.

Confessions of a Serial Cost Cutter

How many times have you seen friends, neighbors or family try and start a business and fail? What did their initial task list look like? Acquired an office, computer, a new car or van, furniture, etc. What do these types of items have in common? They are fixed costs with very little productive value. A drain on precious capital. Early in my career, I went to work for a struggling steel mill. Back in those days the steel industry was battling with foreign competition , recession and high labor costs. A situation not too different from the plight our airlines find themselves in now. The government in its effort to shore up its basic industries provided this mill with loan guarantees to rebuild its capital structure, but did not allow for the working capital to weather the rebuilding process. The effort was a failure.

How do you approach your fixed costs? Are they out ahead of your business? Do you know how much revenue has to come through your door each morning when you unlock it to pay for turning that key?

I have received many offers from various consultants to help me lower and control my costs. Here are a few tips you can apply yourself.

1. Forget hiring the cost control consultant. Your money ahead already, and besides, you already know more about your business than the consultant ever will.
2. Do you know what the five to ten largest expenditures your company makes are each year? Find out and go to work on them. Negotiate with your vendors or shop them around. The savings will come fast.
3. We all want to be liked, but labor costs will be one of our largest expenses. Keep it fair, but keep it under control.
4. Do you want to be the best performer in your market? Always ready to win the wars of competition? Then work at being the lowest cost producer or provider.
5. Don't forget, quality and service always matter. Finding a new customer always cost more than keeping an existing one.
6. Talk to your friends, vendors, customers and employees. The best prices, services or products are not going to just find you.
7. Know how that purchase is going to make money before you buy it.
8. Learn how to say no.
9. Only use debt for the most productive of investments. Leveraging always has it time and place, but it can rob you of flexibility and future opportunity.

There are hundreds of little ways to reach your end on maximizing your bottom line. Let your fixed costs lag your growth. Remember to apply these principles to both your personal, as well as, your business financial situation. The First has a direct impact on the decisions you make in the second.

A Note To The Speaker

The lovely Mrs. SWP received a long survey from the House Speaker, Dennis Hastert. First things first, if you want opinions ask for opinions, but if what you really want is money, ask for money. Don't ask for one when you want the other.

One of the Speaker's questions was whether we thought the government was too intrusive in our personal and business life? Well, yes! Read any of the Blogs I've linked, and you'll find a complaint somewhere on most.

The Speaker also needed to know if government was too big? Many of the remainder of the questions were about new and better ways to spend money. Hopefully the Speaker will set priorities and then rein in the spending.

One of my favorite questions was over what's wrong with our schools. Bad parents, bad teachers, bad administrators, not enough money.... No two schools that I have dealt with in my long parenting career had the same problems, which is why I like Charter Schools that are run by parents who care.

Finally, there was the question whether there needs to be more control over campaign finance given the problems with independent groups (527's) in the last election. Look in the mirror Mr. Speaker. The last law you passed created the problem. Maybe you could start with getting rid of that law instead of looking for new ways to stifle political speech.

Good Advice for The Small Business

I have been working on a post about my own philosophies on cost controls that any small business should consider, but here is a recent post with a list from the Entrepreneurial Mind that any small business person should keep in front of themselves at all times.

Blogging and the Corporation

I am sure this topic will be coming to an employment law seminar near you soon. In the news, Apple is pursuing a case against several blogs that have had inside product development information leaked to them. For those employees that might be involved, I believe that you will find that Apple is well within its rights to pursue you. The Judge has already ruled in Apples favor in two of the cases. While senior executives are oftentimes trained at length about protection of intellectual property, I doubt that little of this education filters down to the rank and file of the company in any meaningful way.

This leads me to a recent blog posting by Michael Hyatt - CEO concerning corporate blogging policy. Two approaches to blog policy are highlighted. Attributed to Microsoft there is the simple approach - "One Microsoft blogger told me that the only rule his company provided was, "Be smart." Then their is the not so simple approach put forth by the author that includes 14 terms and conditions, a list of acceptable blog hosting site, creation of a Blog Oversight Committee and paragraphs of disclaimers of possible liability.

My guess is that, since bloggers tend to be an independent bunch, Mr. Hyatt will find that the average employee blogger will simply forego his alliance site. This leads to the issue of training and communications. The malicious will be who they are. In a world of blogs, chat rooms and message boards we in the executive ranks will need to be constantly vigilant and educate our employees as best we can so that they can protect themselves from the pitfalls of their endeavors.

The SOX Effect

I have run onto excerpts of this paper a couple of times, including this post at Professor Bainbridge. William J. Carney of Emory University has published a paper on SSRN titled "The Costs of Being Public After Sarbanes-Oxley: The Irony of 'Going Private' ". We, as private investors, need to be very concerned about this trend, especially if we focus our investing in the small and micro cap area. In my experience, company's intending to go private tend have basically lost their incentive to maximize shareholder value, and the premiums paid in these transactions tend to be below average. For the companies that attempt these transactions, it is becoming an open invitation to shareholder litigation. This type of litigation tends to be a bigger win for the law firms involved than for the actual investors.

The paper also covers the issue of companies delisting to avoid the costs of complying with the Act. From a policy point of view, I cannot see where driving a number of smaller companies outside the sphere of regulation is a road we want to go down. Investing has always been risky, but risk reward ratios are going out of balance due to the cost of regulation.

Terri and the Miracles I've Seen

As the lawmakers, judges, husband, parents and others fight on over the case of Terry Schiavo, I am reminded of the various miracles that I have seen myself. Working in a large hospital while I put myself through college, I remember some of the cases I saw firsthand. Much like Terri's case I remember a young girl named Debbie. Debbie suffered the same type of brain injury experienced by Terri when things went wrong during a surgical procedure. She had the same type of parents that Terri has. Loving parents who never left her side. They bathed her and cared for her, spoke to her and comforted her every day. She never stopped being the daughter that those two parents loved so much, and no one but God ever tried to take that away from that family. Debbie eventually passed away many years later of other causes, but no one ever tried to robber her of life or take her away from the family she loved.

I also remember the cardiac patient that went into arrest one evening. As is always the case in any hospital, an emergency call went out and a team of professionals rushed in and assisted in an effort to save this man's life. The effort was futile and a time of death was pronounced. A short time later a member of the staff saw a blip on the monitor as she was disconnecting equipment. The effort started again and a man thought dead was soon back with the living. As long as there was a reason to hope, no one gave up on life. How can someone stop breathing, go flatline and not respond to so much medical treatment and then come back on his own? It defies reason, which is why it is not up to us to decide and arbitrate.

The final case I remember most was a younger gentleman. Treated for a rare form of cancer this man found himself paralyzed laying in a specialized bed separated from daily contact with his children while he fought his fight. I worked at that hospital for over four years and he was a patient the whole time, but he eventually walked out of that room.

What power allows people to come back from the brink when there seems to be no hope? I cannot answer that question for you. What I do know is that I didn't go looking for these episodes, they just simply happened as I watched. It is not up to doctors, lawyers, judges or even her husband to decide what happens to Terri. God and Terri will decide when she should leave this world, and we should simply give her the care she needs as she travels down her own road.

Blogfest Summary

Hugh Hewitt broadcasted his radio show yesterday from the Borders Bookstore at the Colorado Mills Mall here in Colorado. Hugh was in Colorado to flog his book BLOG, the Rocky Mountain Alliance of Bloggers and blogging in general. Most of the show covered the more important topic of the day, Terri Schiavo. Of course, Hugh also pitched his candidacy for the Presidency of the University of Colorado early and often. For those of you that couldn't attend the event, here is what really happened.

Hugh was in great form. A wonderful host who connects well with his audience. You could see the effort of the show start to wear on him in the last hour. I'm sure the efforts of a long day and travel piled up.

The true topic of the day was the fight to save Terri Schiavo. What this poor woman ever did to deserve a husband like Michael or a judge like George Greer defies reason. While I don't put as much stock in the feelings of various politicians, one of Hugh's guests was an advocate for handicap rights and everyone should listen to this person's message. Should we prioritize the list of who we will starve next if we allow this to happen to Terri? Maybe we should start with grandma after she developed Alzhiemers. Or maybe we should have taken the last 24 years from uncle Dave after he became a quadriplegic. To be sure he, wished he had died in those initial months following his accident, but he and his family and friends would have missed so much if there had been a Michael Schiavo and a Judge Greer around to help him.

As Hugh is so good at, he promoted Borders, Denver, Colorado, Colorado Mills Mall, the event sponsors, the alliance, the restaurant that was trying to run the Alliance gauntlet with dinner and some town called Lakeland.

Although Hugh tried to maintain a serious tone on his efforts to become the next President of the University, his efforts are doomed. I am relatively sure that in all of his travels to Colorado, Hugh has never made a visit to Boulder. Taking a long lunch on the mall would give him all the enlightenment he would ever need on how futile his efforts really are. If you want to enjoy eternal life here on earth, move to Boulder, for it will always be the Sixties there.

Since I didn't need a lesson on Blogger from the Alliance, the only member I had a chance to meet was Clay Calhoun. Clay is one of the best Colorado bloggers, and should be a daily read if you are interested in what is happening in the Colorado Republican Party. By the way, he absolutely promised me that he would ditch the orange background on his sight after Bob Schaffer wins election as Colorado's National Committeeman to the Republican National Committee.

Finally, there was the climax of my evening. As I finally reached my turn for an autograph at the table with Hugh, he was whisked away for an emergency trip to the men's room. It seems the folks at Channel 9 News were on their way over to interview Hugh and he had been drawing on his face with his felt tip pen. It seems that Hugh and I have more in common than just our age. You see, our wives can dress us up, but they can't take us anywhere!

By the way Hugh, Mary loved the book. Thanks for a great evening.

Managing Charity

Several years ago I was looking for a better way to manage my charitable giving. Gains in my investing would leave me with resources to give and a burning desire to increase my charitable giving for selfish tax related and personal reasons. For various reasons, I didn't always have the long list of proven charities or that single cause to which I wanted to funnel large sums of money. Finally a close friend directed me to a method that provided a means to manage my giving. Most large mutual fund companies today provide charitable giving accounts. In my case I chose the T. Rowe Price Program For Charitable Giving. I was able to transfer restricted stock with a large built up gain without recognizing the gain myself. In addition I was able to take the market value of the stock as a charitable deduction. The account then allow me to invest these funds and direct charitable contributions over time as I saw various needs arise.

Today it is easy for me to direct funds to the charities I believe in without regard to the daily condition of my bank account. As value is built up through the investing of the account, I am actually able to direct more giving than I might have by directly giving. And as my own circumstances have improved over time I have been able to add to the fund and manage the timing of the tax consequences.

To be sure, where the IRS is involved there are rules. The site that I have linked above will make them clear. It also has links to assist you in researching qualified charities and articles that will help you clarify your own goals and focus your giving. I would encourage anyone who is looking to manage the charitable giving in their life better to take the time and research these accounts. You and those you support with your giving will never be disappointed.

Minority Rule

For any Republican Senator who wants to believe that there is a better way to deal with the Democrats filibustering of federal judicial appointments than changing Senate rules in this area, you only have to go to the following post at Radio Blogger. California Senator, Barbara Boxer, has made it clear. Any person who is going to make a good living for life as a federal judge needs to receive a super majority of sixty votes in the Senate. Don't confuse Senator Boxer with the fact that the constitution only requires a simple majority. It also appears she would like to offer a constitutional amendment to require election of federal judges since thy are after all "scary" when they are not elected.

For all of you that might not really like MoveOn.org, they do serve a very useful purpose. Comments like this and others made at this rally would have only been made in a private caucus meeting and would have never seen the light of day without the help of MoveOn. Thank you MoveOn for continually exposing to all what type of people our democratic representatives really are.

"BLOG" Review

I have just finished reading "BLOG" by Hugh Hewitt. If you are more than familiar with blogging and the blogoshere, I would still recommend that you read this book. The book is not a "How To". Rather, it is an adventure through a group of other questions. Why are blogs becoming such an important news and opinion source. Why are they changing how we perceive the media. A journey into ways to use the blogoshere in your personal, professional and religious life, whether your wish is to gather information in or dole information out. To put it simply, "BLOG" will help you expand out how and why you use and utilize blogging in your own life. It will keep you thinking about blogging long after you have put the book down.

If you believe that you already know what you need to know about blogs and blogging read Hugh's book. Visit his site. Listen to his show. No one has begun to think of all the possibilities, but Hugh and "BLOG" will begin to take you down that road.

First Grade Economics

My seven year old son attends a Charter School here in Colorado. Despite what the press would lead you to believe, if you want to find a Charter School near you here in Colorado, you simply find the state achievement scores by school for your county and find the highest rated schools. Last night was that time of the school year when my lovely bride and I made the trek over to school for a parent-teacher conference. The little "E" is a first grader who loves school and pressing people's buttons, and his teacher is a dedicated young woman who (like almost every teacher, administrator and parent involved in this school) has values that line up with the values of my lovely bride and I.

After the usual conversations regarding the E's current academic strengths and weaknesses, our teacher shared a story of how things are currently progressing in class. All year the first grade has been on a reward and penalty system. Tickets are earned for various good deeds and achievements, while tickets are paid back for various wrong doings and indiscretion. Like in any free market, tickets earned and saved can be used to purchase small rewards from the toy box (the small gifts in the box are donated by various parents during the year). Over the past few weeks the class has been moving into a study of the American Revolution and our old buddy King George. As you may recall, King George was not very much like our current President George on the issue of taxes. To teach this point, Miss C has introduced taxes to the ticket reward system. If a little achiever earns two tickets, one ticket goes into the King George Tax Jar. And what have these fine little first graders learned from this lesson? As Miss C pointed out with a coy little smile on her face.

They don't like TAXES!

Reclaiming Your Company

To be sure, a number of high flying companies have been caught up in scandal over the past few years. It is an age old problem. There are any number of solutions that are being tried. Many new ideas to solve the problem are being bandied about. The problem is many are expensive to implement or ineffective or both. The turmoil is being used to advance various agendas, but only give false hope to investors.

Take a look at Section 404 of the Sarbanes-Oxley Act. This calls for documentation of the company's internal controls, testing, correction of weaknesses, outside audit of controls, management opinions on effectiveness and outside auditor's opinions on the management's opinion. This whole exercise is culminated with the CEO and CFO giving their sworn affirmation not once, but twice that they are in control and there are no errors. These affirmations are presrcibed by the SEC and no deviation or qualification of the wording is allowed. This whole process is consuming vast amounts of leadership time and mountains of cash. The immediate reward for the investor is lower earnings and a lower stock valuation. The long-term reward includes less resources for product development or acquisitions, and a management that is more focused on their personal liability and criminal risk generated by inadvertent error by themselves or their staff.

In the end errors still happen. Bad judgment is still an everyday occurrence. Everyday the articles still flow in the business press of financial restatements and SEC inquiries. They will continue to grab headlines, because the reality is they were always there.

Another example of a false flag for the investor's hopes is the new SFAS 123R which directs companies to expense the value of stock options at the time of grant. Instead of considering why stock options can lead a management astray and into poor decision making, we enact an accounting rule to try and discourage its use. Stock options are not the real problem. The concept of aligning employee, management and investor interests is really quite sound. It is in the implementation that the incentive goes wrong.

Since most stock options generate a tax liability at the time of exercise, the average employee is basically forced to sell shares and not hold the stock. This defeats the whole purpose of the stock option since ownership is not established. Other practices such as immediate vesting of options play right into encouraging fraud. The discovery of fraud is almost always a matter of time. Fraud can be covered up for one, two or three years, but eventually outside influences come to bear. Overstatements start to become evident as they build on the Balance Sheet or banks demand payment on hidden obligations.... Eventually every house of cards will fall. Why do we allow our management the opportunity to reap rewards in such a small window of time when longer term vesting would reduce much of the risk.

In the end, the cures to these ills will not come from rules and regulations. It will come from good governance. It will not come from wasting the company's resources or trying to shoe horn every company into a certain set of controls and having them perfectly documented and complied with. It is one thing to prescribe that outside auditors will deal more directly with a company's Audit Committee, but it pure foolishness to believe that a small group of outside board members can provide the day-to-day diligence over a diverse accounting staff performing a variety of complex tasks.

Meanwhile, the outside auditors are being disengaged from the executive management that we are so worried about. New independence rules are preventing the outside auditors from giving advice on new accounting rules and their application. They can no longer provide services such as completing tax returns for executives. Many of these types of functions were once consider useful since they gave the outside auditor a view into how aggressive management was and gave early warning into the executive's own personal financial position. Now the tools that would have raised early flags are being stripped away and the audit firm is flying with a shroud over its head.

The time is coming that investors will need to take back their companies. If we were following grandma's sage advice about an once of prevention, we would be heading in the right direction, but in our current climate we are applying the principle backwards. Today a pound of prevention is worth an once of cure. It is time to come back to core principles of holding people accountable. Investors need to hold their Boards accountable and Boards their managements. Outside auditors need to reevaluate what task they were hired to do and who they really serve. In the end, it will come down to governance. It will come down to investing in companies with quality managements. Boards and investors will need to discipline themselves to take a longer view and provide incentives accordingly. Regulation is simply flushing scarce resources down the drain, and as it always does in a free market, will destroy our ability to compete effectively.

What Is Baseball Thinking

Growing up as a child in the Midwest, baseball was by far my favorite sport. In my teen years, I would probably attend at least a dozen games a year. Even after I moved in 1980 to Denver, there were always the Bears and Zephyrs games to enjoy on a lazy Sunday afternoon. But today attending a baseball game is nothing but a chore for me. A business or Little League obligation. A season ending strike, the vendetta against Pete Rose and now the steroid scandal have beaten any affection for the game right out of me.

For the life of me, I do not understand the leagues rebellion against the subpoenas issued by congress this week. Even more silly is their first amendment claims. They may have some legitimate fifth amendment claims not to incriminate themselves, but I doubt that they have any real first amendment claims.

More importantly, what are they really trying to hide by not turning over their records? They can't be worried about tarnishing their image for that train has already left the station. They look guilty. How long have they known of the problem and just sat on their hands? How deep does the problem really go? And most importantly, why have they been so willing to tolerate cheating? Was homerun records and winning back fans that important to them? As we are finding this winter, it probably wasn't the ball that was juiced. It was the players.

The real crime here is how much the game will be diminished by achievements and records that simply don't mean anything. The game will be worthless when dads like me find that we need to protect our sons from these influences rather than nurture them in the games traditions.

Employee Communications

Our company is small, which means I have a couple of other titles beside CFO, such as Chief Computer Geek and Chief Guy in Charge of Human Resources. Early in my career with another company that was acquired by a large east coast corporation, I became Chief Guy in Charge of Talking to New York. How did I come to own these positions of authority? I guess I just don't know how to get out of the way. At least I don't have to clean the toilets (any more). So this week I have begun a new experiment in employee communications by creating a Blog that will serve as a running corporate newsletter. No printers! No deadlines! No searching for content! Just addressing issues and communicating ideas on my schedule as I see fit. The following is a sample of one of my first postings (the names have been changed to protect the guilty):


Inside Information

As I was driving to work yesterday, I was listening to the Business for Breakfast Show on Radio 1060 AM. During the Stock Talk segment of the show, one among us called the show to discuss our stock's performance. To this person's credit, they did identify themselves as an affiliate of the company when asked by the host, which I am sure changed the nature of the conversation. It actually turned into a nice commercial for the company's stock, but it does give me cause to remind everyone that you must be very careful about insider trading rules.

Everyone is subject to the company's insider trading policy, but you are also subject to various securities laws concerning inside information. I don't want to see anyone at this company become the next Martha Stewart. Whether it is conversations with radio shows, your personal stock broker, ex-employees or friends if you have not seen information you know about the company in a press release from the company, you should not share it. Over my career, I have seen ex-employees here and at other firms call their friends within the company to get an idea of how things were going at the company. In one case, the ex-employee had taken a job as a stock broker and was in a position to pass that information on to clients (sound like a case you have heard in the news this past year?). In a second case, the information from these casual conversations was showing up on a chat board on the company. As I read other company's message boards on sites such as Yahoo, I will quite often see insiders talking about their own company. Again, I am quite familiar with a case where the folks using the chat board were charged with a felony.

If you are not familiar with these laws, you may want to do some research to become familiar. If you have not read the company's insider trading policy in a long time you might want to reread it once in a while to stay familiar. The best policy, however, is to simply avoid detailed conversations about the company's performance or plans. I would simply hate to see any of us break into jail and take an unexpected all expenses paid vacation.

Has Buffet Taken His Eyes Off The Ball

I couldn't help but notice this morning that Berkshire Hathaway, led by the Oracle of Omaha himself Warren Buffet, has announced a ten percent decrease in profits for 2004. I don't normally follow Berkshire, but it seems odd that Mr. Buffet would sneak this little piece of bad news out on a Saturday morning. To be sure, the news was not all bad with profits for the fourth quarter up 40% and another big payday announced when Gillette was acquired. Yet, there are the investigations by the State of New York and the SEC to come. Warren has a knack for seeing opportunity where many of us don't, but he also seems to have a misplaced concern over how we compensate our employees and the way we run our businesses. Maybe this year in his shareholder letter he will look inward a little more, but I doubt it.

Sarbanes-Oxley - Can We Stand The Cost?

"You can't legislate intelligence and common sense into people"
Will Rogers

The stories keep rolling out on what to do for small companies (under $75mm market cap) that will come under the requirements of the internal control provisions of the Sarbanes-Oxley Act. Almost 700 companies self reported weaknesses last year before the first outside audit of controls was performed. The first reports with management and auditor reports on internal controls are due later this month although the smaller companies in this group ( $75MM - $750MM market cap) have been granted an extention of 45 days. Thus a number of Form 10-K's will be filed without these reports and amended later.

The SEC continues to mull over all types of actions. They have asked COSO, the group which drafted the framework for implementing internal controls back in the early 1990's, to rework their framework for smaller companies. Right now COSO is scheduled to meet in April with the hopes of of drafting a new framework by late summer. Some of the members of COSO are now talking about adding elements to the framework to dictate how companies will conduct their internal communications. So now not only will we totally eliminate all mistakes and fraud in the accounting process, but we will now perfect all communications in the workplace. The best part is this age old problem will be resolved in a mere five months.

The head of the SEC is now reportedly asking the Commision's staff to review the situation of implementation of internal control policies and propose an extention. What comfort should be taken from this. A small filer with a December 31, 2005 year-end needs to have their controls reviewed, implemented and staff trained by the end of June to have a chance of success in this process. This would leave the filer six months to start internal auditing, remediate weaknesses, implement changes and audit further. Why is the Commission waiting to pick a new deadline, when small filers needed an answer months ago?

While the SEC sits on its hands, the quality companies will have wasted time, effort and precious capital trying to reach a higher standard than what is attainable. Another problem is looming over the heads of our regulators. Last year almost 200 companies voluntarily delisted and took themselves out from under the requirements of Sarbanes - Oxley. They are basically refusing to comply. The real rush toward this movement is yet to come. As I attend the seminars and network with others like myself, I find there are many who have not started the work. Their companies simply do not intend to comply.

How does this fit in with the SEC's mission? Their whole existence is based on protecting the investors in public companies. The Commission failed investors in the 1990's. Our large public accounting firms failed us at the same time. The Finacial Accounting Standards Board worried about how to take stock options away from executives by trying to change the nature of equity to expense, while a small group of company's executives changed the nature of debt to revenue to enrich themselves. Did Congress investigate this group and their failures? Not really. We saw the parade of corrupt executives before Congressional Committees where nothing was said to protect the guilty. Then Congress passed legislation to punish the innocent in hopes of catching the few. They created a new bureaucracy to watchdog the public accounting industry, but our real culprit, Arthur Andersen, is long gone.

Where does this leave the SEC. They are enforcing a law that is taking billions of dollars out of corporate profits and investor's pockets every year. Their mission of reestablishing investor confidence, is being undermined by hundreds of companies reporting material weaknesses with probably thousands more to come. Small public companies who face compliance or being turned into perpetual money losing machines have their eyes on the exit. This is also true of the larger foreign companies that flocked to the US markets for cheaper capital. If they leave our markets, they can go back to the sane rules of their own local markets.

Will Congress self evaluate what they have done? Evaluate the costs and rewards? Will the SEC go back to the Congress and look for changes? Given the manner in which these people are currently acting, the damage will have to be done first. How many companies will have to close their doors, delist or report to the public that they just can't comply? How far does the market have to go down before a Congressperson looks at their own broker statement and asks how did this happen? My guess is it will need to be a deep drop before our Congress can look at itself and say, I made a mistake.

Note: Today, as expected, the SEC has announced that the implementation dates for non-accelerated filers to implement Section 404 Internal Control Proceedures has been extended by 12 months.

A Day on the Slopes

Like so many Coloradans before him, my seven year old son has been learning to ski. After some professional instruction to assure he doesn't pick up any of dad's bad habits, this Saturday was my turn to enjoy this young man's developing skills. A true delight we went and adventured all over the mountain. We enjoyed the powder on the slopes and the snow in our faces continually searching for new challenges. We worked our way through more challenging green terrain and into the further challenges of steeper blues. We spent our time taking in the beauty of the continental divide talking about our interests as we rode the lifts. We endured the falls and the tired legs. We gave out our whoops as we speeded down the slopes. And at the end of the day, the bonds between a boy and his dad were further built as the young man took one more step in growing up.