The “risk takers/job creators” myth

The “American dream” is that this is a land of opportunity. America is supposed to be the magical place where anyone can work their way up from poverty to the presidency, or at least that’s what we’ve believed.

Recent studies found that our country is now far from that.

Americans enjoy less economic mobility than their peers in Canada and much of Western Europe. The mobility gap has been widely discussed in academic circles, but a sour season of mass unemployment and street protests has moved the discussion toward center stage.

via Harder for Americans to Rise From Lower Rungs –

In a country that prides itself as a “classless society”- we are stratified financially more than ever, and our ruling class now has a stranglehold on Congress (47% are currently millionaires- and it would probably be higher, except we have a big freshman class right now). The gap between the haves and the have nots is growing faster than compound interest and fees on your overdrawn checking account.

Republican candidate for president Mitt Romney still believes the answer is “American business” and that “free enterprise” will take care of the problems:

At an outdoor rally yesterday at Wofford College in Spartanburg, Romney offered a robust defense of American business, warning that “free enterprise is under attack from the right and left.’’…

“This president has got it entirely wrong when he attacks the private sector,’’ Romney said. “Don’t attack the private sector. Don’t attack risk takers. Don’t attack those that are trying to create a brighter future for themselves and their family.’’

“Don’t attack profit,’’ Romney said. “Profit, by the way, is what allows businesses to hire people and grow. Free enterprise is under attack from the right and left.’’

via Ohio Sen. Portman endorses Romney for president.

Fundamentally, Romney is correct, profit is what allows businesses to hire people- the question is what people are we hiring and how the profits are made and shared.

Hiring people in “third world” or “developing nations” is one way to maximize profit- and American corporations have been doing a great job of that. Since the beginning of the economic meltdown, shifting jobs overseas has been easy, despite high unemployment in this country. Many of our biggest corporations have also been hoarding cash. Apple, for instance, is sitting on something around $50 billion. Oddly, the windfalls of success aren’t being shared with the owners of the company- the shareholders through dividends- the only way they can “profit” from ownership is to sell their stock. Yet, the executive team running the company keeps rewarding itself with stock options, multimillion-dollar bonuses (in the tens and hundreds of millions). This isn’t how the system is supposed to work.

Nor was the system working when AIG failed (soon after after the bond-rating agencies gave them an A rating)- and the American public bailed out the banks. The executives at AIG who took the country to the brink of financial destruction all were being paid princely sums and suffered no jail time and most are still making huge money.

A local instance of one of these “job creators” gone bad was MCSi, a high growth sham company that received local taxpayer assistance from the Montgomery County Port Authority in building a new HQ. The company was a house of cards, much like our Wall Street Casino, and when it fell- thousands were out of jobs or forced to write off debts. The CEO, after a protracted court case, was sentenced to a grand total of 7 days in jail. Had he had a few thousand dollars worth of meth in his mansion, he’d be in prison for life.

There is nothing wrong with the American dream, there is a problem with what kind of reward is expected at the top. We laugh when Jihadists dream of being rewarded with 70 virgins after blowing themselves up in the name of Allah, yet we seem to think it’s perfectly OK for companies to pay their executives more in a week than most of their workforce in a year- with zero personal risk involved on their part. Even when the head of Countrywide, Angelo Mozilo, was fired, he took home a huge multimillion-dollar jackpot.

All we have to do is add risk back in to the American business model and also limit the ability to profit wildly without some measurable standard of performance and Mitt can shut up.

Here are three parts of the solution:

  1. The federal government, the largest buyer of goods and services, will no longer purchase from companies that don’t implement a cap on executive pay based on the average U.S. worker’s payroll. In other words, if you are Miami Valley Hospital (Premier Health Partners) or Boeing, and your average U.S.-based payroll is $50K a year, your chief executive can’t make more than 35 times that- or $1,750,000 a year (a caveat might be added that if you operate as a “non-profit” corporation, the ratio drops to 20x- sorry MVH). Note- all hospitals depend on Medicare/Medicaid for their existence, and Boeing wouldn’t be around if not for our Air Force and government contracts.
  2. Shareholders of record, must be paid dividends annually if the company makes a profit. Stocks must be held for a period of at least a year to be eligible and any profit realized from short-term trades is taxed at a 35% tax rate. Dividends would be taxed at 15% to spur investment in private enterprise by the private sector.
  3. Secondary markets- the buying and selling of financial paper and commodity exchanges- would be restricted to either long-term holding of paper, or a requirement to actually take possession of the commodity. It’s time to stop pretending that trading paper is really the same as creating jobs and paying people. Our financial system acts as if “fantasy football” is the real game and the NFL is just a tiny part of the system- when if fact, it’s the other way around- the real people who play the game determine the outcome.

With these three changes, the American dream may come back. We would reward innovators and business founders with the opportunity to make huge money by owning their own companies- while, posers who waltz in after the fact, would have to earn their stock the old-fashioned way.

Romney is so far disconnected from the everyday financial situation of most Americans that he is a perfect example of how our country has lost touch with what a fair income distribution looks like:

He (Romney) also characterized as “not very much” the $374,327 he reported earning in speaking fees last year, though that sum would, by itself, very nearly catapult most American families into the top 1 percent of the country’s earners.

via Romney Says His Tax Rate Is Around 15 Percent –

We don’t hear real solutions to the economic stratification of this country without someone yelling “socialism” – but, the reality is that it is socialism when the taxpayers of this country bail out the wizards of Wall Street with our tax dollars or continue to do business with companies that pay their executives princely sums while pretending to be saving our country money.

On March 6, 2012, you can pick from 6 Democratic candidates to run for Congress against Mike Turner in OH-10. I ask you: Are there any that can write a post with solutions to the crisis- and cite their previous writings since 2005? Can you research their positions- or even question them easily? If you want a new kind of representative, please consider donating to my campaign. I refuse all corporate, PAC and Special Interest money- if it’s not coming from an individual taxpayer, I’m not taking it.

I’m doing what I can to end the myth of the million-dollar congressional campaign as well. Your money will be used in the most efficient way possible. You can help by sharing this message with as many friends as you have. Thank you.


Workflow One: Your “investment”- the poor financing the wealthy

The bankruptcy reorganization of Workflow One story I broke yesterday had my name being uttered with some expletives in the executive offices at the corner of Monument and Patterson. Apparently, releasing the internal memo was bad form on my part.

But, let’s ask the really hard questions about this business. How much have the taxpayers paid to support this corporate entity? And why?

Finding compensation information for executives at Relizon/Workflow One online wasn’t easy. I’m not a financial analyst- but I’m sure someone can. My guess is that the leadership of this house of cards has been making over half a million a year- while asking the people of Dayton to subsidize their taj mahal.

Starting with the first CEO- Rodney Heeden in 1998 as Relizon was still part of Reynolds & Reynolds:

                                  ANNUAL COMPENSATION        LONG-TERM COMPENSATION
                                       -------------------------  ----------------------------
NAME AND                                                             OPTION          LTIP           ALL OTHER
PRINCIPAL POSITION            YEAR     SALARY ($)    BONUS ($)     AWARDS (#)     PAYOUTS ($)   COMPENSATION($)(1)
-------------------------    -------   -----------   -----------  -------------   ------------  -------------------
David R. Holmes                1998      541,025       556,636        322,000        541,025          45,121
Chairman of the Board,         1997      480,575       277,784        226,640        480,575          43,436
President and Chief            1996      466,575       487,095        439,600        466,575          38,232
Executive Officer

Robert C. Nevin                1998      303,907       310,702         31,000        243,126          45,529
President, Automotive          1997      295,056       194,674         22,360        236,045          40,716
Division                       1996      286,463       302,985         18,480        229,170          36,977

Rodney A. Hedeen               1998      268,750       198,640         21,000        215,000          11,441
President, Business            1997      233,600       148,663          5,520        173,493          11,078
Systems Division


that’s $714,831 a year- as they were negotiating with the Port Authority claiming need of taxpayer  help.

Now the funny thing is, depending on who you ask, the Relizon building either cost $18 million or $27 million:

The City of Dayton site says:

Relizon (Workflow One) In the heart of downtown Dayton, the Port Authority built this $27 million office facility in 2001. It is now home to Workflow One, which was formerly known as Relizon. In 2009, legal firm Deloitte announced that they would be moving into the building in 2010. The adjacent parking garage was part of the project and it is also used by season ticket holders for the Dayton Dragons, an affiliate of the Cincinnati Reds baseball team.

via TIF Projects.

Or the DDN had it lower:

DAYTON – As the Relizon Co. begins moving into its $18 million corporate headquarters in downtown Dayton, the local port authority director says he expects more restaurant and office space development to follow.

Last month, Relizon started shifting workers from Kettering to downtown. By April, the company expects to move 500 workers to the new building, which sits at the site of the former Sears, Roebuck Co. department store property at Monument Avenue and Patterson Boulevard.

The move also will pave the way for some location changes for employees of the company’s former parent, Reynolds & Reynolds Co.,

via RELIZON; HEADQUARTERS READY, FILLING – Dayton Daily News | HighBeam Research – FREE trial.

Maybe the newspaper had it lower, by not including the $8+ million that went into site acquisition- that the county paid to the group that bought the old Sears Building for $200K plus a $1.5 million option on the land- the group that included County Administrator Deb Feldman’s husband and father in law.

Moving back to the executives that ran this company into Chapter 11- after Hedeen, came a chap named Greg Mosher. I couldn’t find his compensation- but I did find his political donations: where he had an extra $40k or so lying around to donate to Republicans.

Knowing that this isn’t the finest research and information available- I’m just going to make a generalized statement of what needs to happen: the little guy needs to stop financing the big guys who then buy our politicians off.

So- why don’t we pass a referendum in Ohio banning all tax dollars to private companies- or at least, put the following restrictions in place:

  • Any company that receives a tax break or incentive, must have a firm limit on executive compensation that limits top executives from being paid more than 7 times the lowest paid person or private contractor at that company.
  • Any company that accepts a tax break or incentive, is forbidden to donate to politicians for the period of the incentive or break via their top executives or PACs. Any company or executives that donate more than $250 to any politician in the 2 years previous may NOT be eligible for any tax breaks or incentives. If you have money to donate- you have money to operate without tax payer support.

It’s time to shut down the Port Authority that may be in violation of the State Constitution anyway. I’ve just found this organization, the 1851 Center for Constitutional Law,  that actually takes the time to read the Ohio Constitution and tries to enforce it- as in the case in Gahanna:

Legal Center: Gahanna High-Interest, High-Risk Loan Plan Is Unconstitutional

September 8, 2010 By 1851 Center for Constitutional Law

1851 Center Threatens City Officials with Court Action

Columbus – The 1851 Center for Constitutional Law, a nonpartisan public interest law firm, yesterday notified Gahanna city officials it will file a court action if the city moves forward with a proposed $375,000 high-risk venture capital loan fund. The legal center will pursue the case on behalf of Gahanna taxpayers in the event the city council approves the proposed ordinance.

Gahanna City Council recently proposed an ordinance permitting the mayor to contract with the Economic and Community Development Institute (ECDI) for the creation of a venture capital loan fund. The fund would issue high-interest and interest-only loans to local businesses and individuals considered high-risk by conventional lenders.

1851 Center Executive Director Maurice Thompson advised Gahanna City Council against this constitutionally prohibited plan during Tuesday evening’s council meeting. After Thompson’s presentation, council members decided to postpone a vote on the ordinance by two weeks while they review the consequences of the impending legal challenge.

“Gahanna’s proposed ordinance is crafted to assist purely private interests, while placing public money that rightfully belongs to Gahanna residents and taxpayers very much at risk,” said Thompson. “The Ohio Constitution strictly forbids this type of reckless and irresponsible fiscal policy.”

Specifically, the Ohio Constitution (Section 6, Article VII) prohibits the city from “raising money for or loaning its credit to any private company, corporation or association.” According to Ohio Supreme Court precedent, this constitutional provision is intended to protect taxpayers from the risks associated with the failure of a private project. (Emphasis mine)

via Legal Center: Gahanna High-Interest, High-Risk Loan Plan Is Unconstitutional — Ohio

It would follow that most real estate development projects are purely speculative, despite the signing of long term leases. Even “Entrepreneurs Centers” are exposing taxpayers to risks associated with the failure of a private project. Unless the money is directed to the provision of public services- those that are available to all citizens, it’s time to end this farce that funds political careers and then in turn results in “crony capitalism” or “corporate welfare.”

Workflow One is just the latest example of government intervention where it has zero business.

Workflow One reorganizes in Chapter 11

Workflow One, the former Relizon, the spin-off of Reynolds and Reynolds and the recipient of some very nice “economic development” incentive packages to be in their Port Authority-financed building on the corner of Monument and Patterson announced to employees yesterday that they are going to restructure using Chapter 11:

Wednesday Sept 29 at 10:01 PM

Dear WorkflowOne Employees,

Today we took an important step forward in the ongoing transformation of our company.  We have begun finalizing the terms of a debt restructuring with our lender group.  This restructuring will enable us to significantly improve our balance sheet and provide us with more financial flexibility to grow our business.

In order to complete the restructuring, WorkflowOne, our parent company and its U.S. subsidiaries have filed voluntary petitions to reorganize under Chapter 11 of the U.S. Bankruptcy Code.   We decided to make use of a court supervised restructuring process because we believe it is the most efficient way to implement our financial restructuring on an accelerated basis while continuing to operate our business and serve our customers without disruption. During the Chapter 11 process, we intend to continue improving and transforming our company.

We want to assure you that WorkflowOne is NOT going out of business.  We simply need to address the timing and payment terms of current debt.

Chapter 11 is a well-established process that has been used successfully by many companies in the U.S., including some in our industry such as Norwood, Quebecor, American Color and Vertis, as well as major airlines, automobile companies and retailers.  We believe that WorkflowOne will emerge from Chapter 11 far better positioned to maintain and expand our leadership in the industry.

We fully expect that as we continue through this process, there will be no changes to pay or health and welfare benefits for our employees as a result of the filing.  Customers and suppliers should also see little change.  Our plants and business service centers will remain open on normal schedules, and we will continue providing uninterrupted customer service and industry-leading solutions and services to our customers around the country.  We also intend to continue paying all of our suppliers for goods and services they provide after the filing.

Please remember that delivering for our customers remains our top priority.

Our restructuring efforts will likely raise questions among our customers and suppliers as well as from people within our company and industry.  You will be receiving answers to frequently asked questions, and other communications materials to assist you in responding to general inquiries.

If you receive questions about our debt restructuring actions from customers, suppliers, or former employees, please do not try and address their concerns beyond the materials we will provide you.  Instead, refer them to our new, toll-free Restructuring Information Line at (866) 419-7365, which will be operational during regular business hours.

If you have questions, we encourage you to talk with your supervisor, Human Resources representative, or site leader if you need additional clarification.  You should also feel free to submit any questions to your HRdirect team toll free at (866) 375-2222 (Dayton ext. 59301) or [email protected]. We will monitor these mailboxes and post replies to the most commonly asked questions in the new restructuring section of Neo, our internal website.

Our goal is to emerge from the Chapter 11 process in as few months as possible.   During this time, a small group of senior leaders will be involved in the legal and financial requirements of the restructuring.  They will be working to complete the financial restructuring process as quickly and efficiently as possible.   The majority of our people and resources should continue focusing on serving our customers, strengthening our relationships with them and driving profitable growth.  In short, it will be business-as-usual for us.

When this process is complete, we expect to have a new, stronger capital structure that will free up our resources and allow us to invest in building our business and give our customers and other business partners even more confidence in our strength as a solid partner for them.

Taking the necessary steps to accomplish a new capital structure with an improved balance sheet coupled with our ongoing operational enhancements will help us transform WorkflowOne into an even better company.

Let’s continue to stay focused on those areas that will drive our success – delivering for our customers, partnering with our suppliers, and continuing to meet our sales targets and performance goals.  We will make every effort to keep you updated throughout this process.

Thanks for your continued commitment.

Dave Davis                                                                               Dean Truitt

Chief Executive Officer                                                           President and COO

Workflow Management, Inc.                                                 Workflow Management, Inc.

Austin Road Addendum: Dayton/Montgomery County Port Authority involvement

One thing I forgot to mention from the Downtown Dayton Partnership’s presentation on Austin Road yesterday- there are four quadrants of land around the interchange. The two on the East side are both owned by RG Properties. The West side is optioned by RG Properties. Part of the North West quandrant- is owned by the Dayton/Montgomery County Port Authority.

Anytime I see mention of the Port Authority, alarm bells ring. This is the shadow-quasi governmental slush fund used to put tax dollars into corporate pockets at a steep discount. MCSi, the ponzi scheme computer supply company that built their corporate HQ in Kettering, only to leave the taxpayers taking a bath.

I’m sure a few of my readers know more about this deal than I do- please feel free to share the info in comments.